It makes sense for European student platforms to go global

06 April 2021


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The Covid-19 pandemic has disrupted business as usual for the majority of the real estate market. From offices to storefronts, as consumer behaviours change, so too does the appetite of the investors seeking long-term returns. However, the purpose-built student accommodation sector continues to outperform other real estate sectors, with global education trends underpinning a resilient market that remains well-positioned for further growth even despite Covid-19.

Global Student Accommodation Group recently made its first entry into the US student housing market and become the first major international investor and operator in the US market through its acquisition of 27 properties nationwide. Despite the challenges of the last year, GSA is confident that there are significant opportunities for expansion into new geographies to meet the growing demand for high-quality student accommodation across the world. 

With maturity, comes opportunity
The US is one of the most mature markets for student accommodation in the world, alongside Australia and the UK. Unlike emerging European markets, such as Spain and Germany, which are constructing their first generation of PBSA assets, the maturity of the US market present investors with the opportunity to acquire and refurbish existing income-producing assets without the associated development costs and risks of newer markets. 

Furthermore, while the pandemic and associated travel bans may have affected short-term occupancy rates in those markets with high rates of international students, such as the UK, Ireland and Australia, the US market remains notably resilient. Its heavily domestic student population comprises 95% of the total student body. 

As GSA examined the scope of the US market, it found that the average annual occupancy in the portfolio acquired was 96% over several years, falling only marginally below that level through the challenges of 2020. CBRE’s latest research confirm that average occupancy for the whole of the US market was 91.7% in Q4 2019 and fell only marginally to 88% in Q4 2020. Furthermore, US rental growth for student housing is set to outperform multifamily housing and carries a lower rental default rate. 

As a global investment manager operating in nine countries around the world, GSSA knows that the key to success is to take a bespoke approach to each country, taking into account cultural and environmental nuances while leveraging GSA’s global mindset and expertise. As GSA looks to expand its footprint in the US and globally, it will be well placed to draw upon the lessons learned from developing and operating assets located in mature European markets, such as the UK, in order to maximise the value of assets in new markets. 

For instance, prior to the acquisition in the US, GSA leveraged its experience of operating three existing student brands across the UK, Europe and APC to identify the refurbishment opportunities of specific assets in the portfolio. This included upgrades to rooms and common spaces, and addressing operational efficiencies. 

As countries around the world reflect on how they recover economically, GSA and CBRE believe higher education will play a critical role. To Achieve growth and investor returns, economies need innovation to flourish, and universities are so often the catalyst for entrepreneurial dynamism. 

There are different challenges in different markets, but globally, most major cities remain undersupplied with student housing, a trend that has accelerated in the last few years and is set to continue as the student population grows. Consistent with European countries, the previous dip in birth rates has now bottomed out and the number of 18-year olds in the US market is set to increase from 4.1 million in 2020 to 4.2 million in 2025. 

Student accommodation has an investment case that has become increasingly attractive to investors. CBRE’s UK PBSA Index demonstrates the PBSA delivered a total return of 4.9% in the year to September 2020, outperforming the all-property average for the same period of -3.5%. PBSA has also delivered the strongest risk-adjusted returns of any real estate class over the past nine years, and with least volatility. The sector has generated reliable returns for investors, and supported broader economic benefits for local communities. 

As capital is directed away from retail and commercial real estate towards the alternatives sector, increased capital flows into alternatives have steadily produced a buoyant equity raising environment for investors to expand into new markets and explore further opportunities in the student sector. 

At both GSA and CBRE, one of our leading global valuation partners, we are confident that we will all emerge from this pandemic more resilient and prepared with the energy and enthusiasm to take advantage of scale and growth opportunities. What is evident is that people around the world, of all ages and backgrounds, value education and the transformational benefits it brings to our lives

Robin Moorcroft is Transactions Director, APAC and USA for GSA, and Jo Winchester is Executive Director of PBSA and co-living valuation and advisory services at CBRE. 

This article first appeared in React News.