For those of us on the wrong side of 40, university probably involved a first year in basic university-managed halls, followed by a few years sharing a poorly furnished terraced house with more people than the Victorians ever intended it to accommodate. The situation has changed dramatically today. When our children’s generation go to university they will find a markedly better offering, with superior amenities, professional management and a range of services included.
The evolution of student housing has been linked to the commercial real estate sector since the early days, when Unite converted vacant offices in Bristol into privately managed student flats. In subsequent years, institutional real estate investors became interested in the sector when universities agreed to sign up to long leases to fund the provision of safe and convenient places for their first-year students to live. Latterly, sector specialists such as Liberty Living and Empiric Student Property have brought increased competition to the market, catering for the needs of second- and third-year undergraduates, postgraduates and the growing contingent of students from overseas.
This week’s Sixth Annual RBS Student Accommodation Reception, in association with the BPF, LandAid and Estates Gazette, welcomed 100 investors and operators from across the sector.
Despite how far the sector has come, from an investment perspective student housing has remained an “alternative”, seemingly a long way behind the mainstream of offices, retail and industrial assets. However, 2015 may have been a watershed year for the sector. Over £5bn of purpose-built student accommodation deals transacted in 2015, similar to the amount invested in shopping centres. Investors also now seem to be far more prepared to expose themselves to operating risk as a long-term trend of rental growth has become established. Indeed, most investment last year was on a direct-let basis rather than through a lease structure.
A notable facet of recent investment activity has been consolidation. Unite continued to grow its platform, Canadian investor CPPIB gained instant impact by acquiring Liberty Living, while US operator Greystar put its Prodigy Living platform into a joint venture with Wellcome Trust’s IQ portfolio. However, with an estimated 30% of investable stock being traded in 2015, there is limited scope for activity on that scale to occur again in the short-term. Instead, operators seeking to expand their platforms and investors looking to increase their allocations may look to forward fund the development of new stock.
Royal Bank of Scotland has committed more than £1bn to purpose-built student accommodation to help our customers develop the next generation of accommodation. The higher education sector is a huge asset for the country, and offering accommodation which is on a par with the quality of teaching is essential to ensure that the UK remains a world leader.
Government statistics show that 192,000 overseas students came to the UK to study in the year to June 2015, and most want to live in managed schemes. Although London is a big draw for foreign students, there are many strong institutions around the UK and RBS has recently supported customers on the development of schemes in Edinburgh, Birmingham, Leicester and York.
At RBS, we also believe that the success achieved through raising standards in PBSA shows the path for the private rented sector. At the 2001 census, 60% of households were owned and 40% rented, but 15 years later these proportions have effectively reversed. Thousands of young people are graduating every year having become accustomed to the services offered by professionally managed student blocks. They will be the customers of the future for the PRS and it is incumbent on us in the real estate industry to ensure we have built the product to cater to their needs.
Paul Coates is managing director, real estate finance at Royal Bank of Scotland
