‘Investors see student housing as a resilient sector’
Investors continue to have faith in student housing as a resilient sector, delegates heard at Real Asset Media’s Student Housing, Micro-living and Co-living investment briefing, which took place online with over 780 participants from 40 countries.
‘Institutional investors are sure they will get their long-term returns,’ said Samuel Vetrak, Chief Executive Officer, Bonard. ‘There is more confidence in student housing than in other asset classes like retail or offices and no desire to divest’.
In Asia, the first to experience and get over the epidemic, ‘student housing has gone from bottom of the list to 3rd most in-demand asset class by investors with capital to allocate,’ he said.
The same trend is likely to be seen in Europe next year. ‘We anticipate that there will be more players in 2021 and competition for student housing assets will be intensified,’ Vetrak said.
The expectation is that the negative impact the coronavirus is having on the sector will be short-lived. Some operators are experiencing cancellations, deals and transactions have paused and opportunistic investors are on the prowl for bargains.
‘Unlike the hotel sector, student housing is experiencing some difficulties but no collapse,’ he said. Another sign of optimism is that ‘developers are not concerned and continue to work whenever possible’. There is a pipeline of 725 new projects being developed in Europe, some of which will be completed this year.
Rents have remained stable and they are not expected to drop. ‘Some operators have tried rental discounts, but this strategy doesn’t seem to work,’ said Vetrak.
There will be more activity and consolidation ahead in the sector, experts agreed. The current crisis due to coronavirus ‘is a hiccup along the route,’ said Douglas Edwards, Managing Director, Head of Equity Raising & Client Services, CORESTATE Capital Group. ‘Capital is very active in the sector, there is great interest in Europe and also in Asia because the positive trends are clear. All the fundamentals, such as demand and income, are still there’.
Some things have changed in the market in the past few weeks but some have not. ‘Some fundamentals factors have stayed the same,’ said Rainer Nonnengässer, Chief Executive Officer, International Campus. ‘Interest rates are low, there is a lot of liquidity in the market and the imbalance between offer and demand remains’.
The current situation offers a chance to be more active and look for opportunities, he said: ‘We see no great price dips in student housing, but in the hospitality sector there could be developments that are stuck and could be transformed into student accommodation or micro-living’.
Looking ahead, there is likely to be more regulation in the sector as well as an additional increase in operating costs, which will drive activity.
In the short-term people will tend to hunker down, said Philip Hillman, Chairman, Living Capital Markets, JLL: ‘ There will be more focus on markets where they already are to build critical mass and achieve potential cost-savings, which are important as operational costs are likely to increase’.
The consolidation trend is likely to pick up in the next few months as the crisis hits the most vulnerable. ‘I see a lot of consolidation and mergers ahead in the sector,’ Hillman said. ‘Student housing is a very resilient sector but there will be some distress in the future, although we are not seeing distress yet’.