Yet unfavourable demographics is one reason for caution cited by student housing sceptics. Robert Houston, partner at investment management firm St Bride’s, acknowledges that investing in student accommodation has been largely successful for investors over the past decade. But he points out that projected UK population growth over the next 20 years will be among newborns and the elderly, with almost no growth in the student age bracket. “Combine this with tougher visa conditions and the burden of student loans and the prospects in this arena are much less compelling,” he says.
In any case, the prospect of the drop in demand has focused investors’ minds. Now they are looking for ways to get out even before they get in.
Exit strategies were uppermost in Luxembourg Fund Partners (LFP) director John Hill’s mind when the fund manager launched its Student Accommodation Opportunity Fund earlier this year. In contrast to existing strategies focused on purposebuilt blocks, the SICAV targets residential assets LFP can convert into student units – and back again.
“It’s easier to sell a portfolio of houses than a purpose-built block,” says Hill, pointing out that the only alternative use for a purposebuilt asset would be as a hotel conversion. “Managing investors’ money is about having a back-up plan.”
Even if demand and other risks can be managed, there are limits to the potential for investment in this asset class. Student accommodation is a local – at best national – business with enough market specificities to make it almost uninvestable outside the UK. PGGM, for example, sees little chance of replicating its UK student accommodation investment elsewhere in Europe, though not because it lacks the appetite. In the Netherlands, for example, student housing is typically subsidised. Rent regulation prevents investors from earning market based returns, creating shortages in the market and driving students to the expensive private rental market, “In a subsidised and over-regulated sector, investors struggle to find economic sensible opportunities,” says Gerritsen.
Still, there are reasons to be cheerful, at least for the UK. Harding points out that, despite recent cuts, “the government is not looking to affect demand – they want people to go to university”. In any case, she says, government funding cuts will mean there is less money to spend on accommodation, so it will be up to external providers to provide it.
Meanwhile, the good news for investors is that operators need their capital. “It’s been clear for four or five years that we need pension funds to come into the higher education market. It’s a natural fit,” says Wakeford. Back in the late 1990s, it wasn’t unusual for a single bank to come up with a £100m loan for a project. Now, he says, you would have to line up four banks for the same ticket.
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