Student housing asset class defies bubble suggestions

The gap between supply and demand makes PBSA in Europe a good investment, experts agreed at the Financing Opportunities in Student Housing online briefing, which Real Asset Media staged this week on the REALX.Global platform.

This year occupancy rates have been higher than expected, according to Bonard research, reaching 98% in Germany and CEE.

“We’re a long-term investor and we believe in the long-term fundamentals of student housing,” said Leo Hertog, senior portfolio manager real estate, APG Asset Management. “The supply/demand imbalance is actually growing, as student enrolment is going up despite the disruption,” he said.

Crisis encourages further academic study

In times of economic crisis and a difficult job market, more people choose to continue studying at post-graduate level or even to go back to University. There is a track record of information on this, as the student population increased during the GFC.

“The UK is a mature market, but PBSA penetration in Spain or Italy is still in the low single digits, so there are great opportunities in the sector because of the lack of supply,” said Arron Taggart, head of UK investment, Cheyne Capital. In Milan, for example, the penetration rate is 2%.

“We’ve looked at Milan because the fundamentals are incredibly strong, they sing to us,” said Taggart. “There are 230,000 students and hardly any purpose-built accommodation. We’d definitely finance schemes in Italy and Spain but we’d want to follow institutional developers we know and trust, because it’s scary to go into a market you don’t know.”

The quality of developers and operators is a crucial factor when underwriting risk in such a management-intensive sector. There are many opportunities, but the only problem, said Hertog, is that “in Continental Europe it is more difficult to obtain financing than in the UK.”

Mark Quigley, managing firector UK real estate finance, Beaufort Capital, said: “It’s been up all the way for years so some people talk of a student housing bubble, but I can see another ten years of growth ahead.”

The sector’s performance this year is proof of its resilience, he said: “It was scary back in March but now I’m incredibly pleased how our student housing investments have performed. The elasticity of demand is very strong, as is occupancy, even with less foreign students coming.”