The negative effects of the pandemic on the student housing sector will be short-lived, experts agreed at Real Asset Media’s Student Housing, Micro and Co-Living briefing, which took place online recently on the REALX.Global platform.
“Covid-19 is a blip in the progress of PBSA across the world, while it has exacerbated challenges in other sectors,” said Will Rowson, CEO, Global Student Accommodation. “Most investors can see beyond the temporary drops in income to the long-term growth ahead, which is why we are seeing a broader range of investor demand than in the past, including HNWIs.”
The relative performance of the student housing sector has been robust, while micro-living and co-living, which are more dependent on business, have suffered more.
“There is strong investor demand and most institutions are still underweight, they want to increase their exposure to the sector,” said Stephen Miles, head of operational real estate, investment Continental Europe, CBRE. “We’ve seen compression on yields in the last few months. My advice is be diligent in your underwriting and be careful about price points.”
Last year, investment volumes in the student housing sector in Europe reached €9 billion, which is regarded as a strong number given the lockdowns and travel restrictions.
“Investors know there is a tailwind that will push the sector forward over the long term,” said Mark Holz, head of research, Corestate Capital Partners.
The sector’s strong fundamentals are the reason why even the most cautious of banks have continued their support during last year’s turmoil.
“Banks see it as a short-term blip and are taking a sensible view on debt,” said Brian Welsh, head of student, Round Hill Capital. “They get the situation and should be applauded for their support. Student housing is seen as a benign asset class by lenders, who have much bigger problems on their books at the moment.”
No covenants are being broken in the sector, while hotels, for example, are facing two consecutive summers of no revenue. In difficult times lenders flock to quality and will still support a good business plan with bright prospects.
“A lot of transactions are development and forward-funding, which jumps over the problem because it takes you past the pandemic scenario,” said Miles. “The forward-funding market has been really interesting. Of course there are underwriting challenges, some systemic and some due to the Coronavirus bump in the road, but I’m pretty optimistic on the sector’s future.”