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March 22, 2016

Global real estate investors are diversifying their portfolios in search of returns and this was clear at MIPIM in Cannes last week as alternative investments, namely student housing, took centre stage.

Thanks to the sustainable income on offer, student housing has become an increasingly popular alternative property investment in recent years, driven by strong student populations across the continent. In a market beset by low yields  the sector is beginning to attract more institutional capital.

Speaking on a panel of experts hosted by Property EU, Philip Hillman, chairman of alternatives, JLL, said: “There’s ongoing institutionalisation and quite a lot of changes in ownership structures in the UK and looking ahead we’re probably going to see a slight shift; last year, in £5 billion of transactions, most of which was opportunity capital not institutional money.

“We’re assuming that in mainland Europe, while the private equity houses and the opportunity funds will still be the dominant players, we’re gradually moving to more institutional capital.”

Highlighting the shift in investor behaviour in the sector is the recent news that UNITE, the UK’s biggest property firm in the student sector, will convert to REIT status in 2017, bringing more than 40,000 beds to one platform.

However, finding the right deals remains a challenge and this is forcing investors, or would-be investors, to learn from other corners of the real estate market.

Rainer Nonnengasser, managing director at MPC Real Estate, said: “Investors want product and if they can’t buy they go elsewhere. They must think along same lines as the private rented sector (PRS).”

Parallels with PRS

“In Germany, student housing is looked at largely as a residential product,” explains Thomas Landschreiber, chief investment fficer, Corestate Capital Group.

“If you look at demographics it’s obvious that students and young professionals have more or less the same requirements and if you’re in an economically attractive city it makes sense to attract students, commuters and young professionals and look at layouts with different fittings and amenities.”

The panel agreed that appealing to students from country-to-country, and even city-to-city, is something investors should pay greater attention to.

Steven Zeeman, managing director, Greystar Continental Europe, said: “If we’re talking pan-european we can’t assume the same metrics work in each market. In some you can switch from residential to student, for example, in others you can’t.”

Cultural differences are also critical, he added: “Catered accommodation versus non catered is important in Spain. In some countries, students are encouraged to study close to home but they travel in others.”

UK a decade ahead

As with other alternative sectors – including healthcare, data storage and even hotels – student housing has reached varying levels of maturity across the region.

In the UK alone, strong global investor demand led to a record £5billion of transactions in 2015, up from £1.7billion the previous year and just £274 million in 2010.

“The UK market is 10-12 years ahead of Europe,” said Hillman.

“Germany, Spain and Dublin are coming on fast. France is coming on but it’s not something institutions can buy into at the moment.”
Baudouin Delaporte, Director of Real Estate Development at Gecina, explained: “There’s no new stock in Paris so we’re looking at redeveloping; investors can’t simply buy a portfolio.”

In markets where product exists, investors are being advised to look at student housing in the same light retail and offices where long term leases are commonplace.

Hillman said: “Investors face some challenges in understanding how these businesses [student housing] operate when it comes to the lease structures. It’s not same long term security as retail or offices but the big players, with 100 per cent occupancy, have a very resilient model and they’re resilient to shocks; whether it’s the fee increases in 2013 or the financial crisis in general, they understand the sustainable income profile.”

Profit for pioneers

The panel highlighted the Nordics as the market with the most opportunity for investors, closely followed by Spain, Germany and Portugal, which also show promise. Italy, too, shows emerging potential as Italians begin to travel further from home to study, bucking a longstanding trend among Italian students to study close to home.

“There are so many opportunities in Europe it’s ridiculous,” said Hillman. “But it’s about looking at where there’s reward for pioneering.”

Philip Hillman
Chairman of Alternatives, JLL,

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