From our recent analysis of PBSA investments across EMEA, it is clear that this nascent asset class is now attracting a far wider array of investors and that the UK is no longer the sole focus of this capital – undersupplied European student accommodation is increasingly catching the interest of investors. While PBSA has – as with most real estate sectors - been impacted in the short term by COVID-19, its non-cyclical nature promises good growth potential in wider Europe.
Over the last two years, yields in the most established PBSA markets across EMEA - UK, Germany, Spain and Ireland - have all been tightening by approximately 35 bps year-on-year, as shown in a number of key transactions. This is in line with wider real estate market trends, but is also evidence of the growing appetite for PBSA across EMEA.
A number of active buyers are acquiring assets in multiple countries, including Brookfield, XIOR REIT, Basecamp, The Student Hotel and GSA as the sector expands. The UK-based IQ platform is the latest to have changed hands, to Blackstone, in Q2 2020 for £4.66bn (€5.53bn). Between 2015 and 2019, an average of around £6bn (€5.48bn) was invested each year across EMEA (including UK) in this sector. Although the UK is the largest and most mature market in Europe, overall investment in the rest of Europe also grew year-on-year between 2015 and 2018, and between 2015 to 2019 an average of at least £2bn (€2.19bn) has been invested each year in the countries outside the UK where an active market exists.
Platform deals are the most sought-after and are sometimes priced at a premium due to their scarcity in Europe, and the considerable work involved in sourcing sites, planning, construction and letting up. Joint ventures have become a common feature, where investors will work with developers to source sites. In terms of the effect of Covid-19, the sector is likely to see short term disruption to cash flow, due to students leaving before the end of the academic year, the lack of summer income, and universities being somewhat slow to confirm how they plan to teach courses in 2020/2021.
It would be remiss not to mention that international student mobility is likely to be restricted, with a return to normal more likely in September 2021. The impact on PBSA will vary between countries, with those locations less dependent on international students, such as Spain, being less affected.
Operating costs have been increasing and will continue to increase as there are greater expectations from students, particularly since the Covid-19 outbreak, as more emphasis will be placed on cleaning, social distancing measures and student support. The type of room students prefer may also change, and already operators have reported an increase in demand for studios, and fewer students willing to share rooms.
Long-term fundamentals of demand for higher education and PBSA remain strong. PBSA is likely to weather the storm better than other asset classes as it has fewer structural challenges the pandemic can exacerbate. The non-cyclical or counter-cyclical demand from university students and undersupply of good-quality stock in all the major university cities across Europe, will continue to be a draw for operators and investors alike.