The UK student housing market performed well in 2016 despite a difficult set of circumstances
Investors traded 68,000 student beds worth £4.5bn last year in the face of severe headwinds. Regarding to research by Savills UK expect £5.3bn to trade in 2017, or 75,000 beds.
This represents 17% more money changing hands for just 10% more stock. There are some very large portfolios to come to market this year, which will trade at a premium to reflect their size. On the opposite page Brook Burton explains the portfolio premium in more detail.
Many more of these deals took place in the second half of the year, as investors opted to wait for any market movement following the outcome of the EU referendum. The UK’s decision to leave the EU does not seem to have affected investment appetite – in fact, it may have intensified it. With sterling now worth less relative to many other international currencies, deals are highly attractive to overseas investors.
The appetite for student housing assets has outgrown the supply of available stock. Of the £4.5bn traded in 2016, £1.1bn (25%) involved forward funding developments while £223m (5%) were development sites. Existing stock made up 69% of trades, the lowest proportion on record. We expect this higher level of investment in development to continue this year.
The trend towards consolidation has continued. This has had a striking effect on our rankings of student housing investors. Two of our Top Ten investors by number of beds are new entrants to the list, having not invested in the UK student market at all until last year. This shows how student housing has established itself as an attractive asset class worldwide, even in the face of political risk.
Global investment into UK Student Housing
Last year we saw UK student housing continue its evolution into a global investment market. the proportion of international investment owing into the market has almost doubled in the last two years. foreign investment grew from 35% of transactions in 2014 to 64% in 2016.
There was a huge increase in Singaporean investment in 2016, up to almost £1.2 billion from just £35 million the year before. Almost two thirds of this came from just one investor: a JV between Singaporean sovereign wealth fund GIC and GSA, who acquired over 7,000 beds.see full screen
North America was the second largest source of capital into UK student housing in 2016, investing over £1.3 billion. The vast majority of that came from two Canadian investors: Brook eld SRE and CPPIB.
The effect of the EU referendum has been mixed. Although the decision to leave the EU may affect universities’ ability to secure valuable overseas students, the falling value of sterling makes the UK more attractive to international investors and students. We saw over £2.1 billion transacted after the referendum compared to £1.9 billion in the earlier part of the year.
UK Student Housing Investment Activity
More Lenders Compete to Fund Student Housing
Lenders now see student housing as a secure sector. We are seeing a growing number of lenders willing to lend in the space, at higher loan to value ratios and at cheaper nancing rates than we’ve typically seen in the past.
Debt funds, offering higher cost / higher leverage nance, have also been increasing their activity in the student market. We have seen an increase in specialist debt funds with a pure focus on development nance. They often nance deals with loan to cost ratios as high as 80-85%, which typically translates to a 70% loan to value (day one). However, these loans are only available as a short-term option, so developers / investors need to re nance or sell their assets soon after construction is complete.
Show me the money: The UK attracted 112,000 full- time students from the EU and 285,000 from other countries last year, making up just under 23% of the full-time student population. These students contribute £25bn (Universities UK) to the UK economy each year through tuition fees and other spending such as accommodation and services.