Real Asset Insights | Resilient PBSA shows why sector continues to grow

Dec. 17, 2020

Transparency, undersupply and resilience are some of the reasons why purpose-built student accommodation (PBSA) continues to grow throughout Europe. The sector is maturing and attracting different investors and sources of capital.

“There will be more and more institutional capital going into the student housing sector, because it is maturing and is seen as countercyclical,” explains Arron Taggart, head of UK investment at Cheyne Capital. “It’s an entirely different playing field. With more and different types of capital coming into the sector, there are options for developers and borrowers to tailor their debt needs to their business model and to the opportunities.”

It is useful to have alternative capital providers at times of high volatility like now, to help new schemes come to fruition.

“Banks tend to have quite a binary view, they’re either in or out, and at the moment they’re out, at least on development projects,” Taggart says.

“We operate across the board and we’re big on development and mezzanine. We love the transparency of the sector, as there is so much in-depth research and analysis.”

Investors and lenders are able to examine in detail the supply situation in every city, as well as data on transactions and on domestic and international students arriving. “You can really drill into the numbers, which makes it easier to analyse risk and to make good investment decisions,” says Taggart. “In real estate only the hotel sector is as transparent as this.”


Another positive for the sector is its resilience. “The important differentiator is that we don’t expect a lot of distress to come into student housing, unlike other sectors where we see it happening already,” says Mark Quigley, managing director, UK real estate finance, at Beaufort Capital. “That’s an extremely strong fundamental to have and it’s one of the reasons why we invest.”

Student housing “is in a very good spot compared to other asset classes like retail or offices”, says Leo Hertog, senior portfolio manager, real estate, at APG Asset Management. “Student housing is definitely coming of age,’ adds Rob Bould, non-executive director and senior adviser at property stock exchange IPSX. “In the UK the largest REIT is Segro, the second Land Securities and the third is Unite, so student housing is bigger than British Land, which used to be the biggest REIT.”


The gap between supply and demand also makes PBSA in Europe a good investment, experts agree. “It’s been up all the way for years so some people talk of a student housing bubble, but I can see another 10 years of growth ahead,” says Quigley.

The sector’s performance this year shows its resilience, he adds: “It was scary in March but I’m incredibly pleased how our student housing investments have performed. The elasticity of demand is very strong, as is occupancy, even with fewer foreign students coming.”

 According to research from Bonard, occupancy rates have been higher than expected this year, reaching 98% in Germany and CEE. “We have witnessed no divestments this year, but rather a lot of new investments despite the crisis,” says Samuel Vetrak, Bonard’s CEO. “We expect €20 billion in transactions in Europe in 2021.”

There is a strong pipeline, Vetrak adds, with 280 new establishments offering a total of 98,000 extra beds opening in Europe by 2022 – but even this will not be enough to meet growing demand.

“We’re a long-term investor and we believe in the long-term fundamentals of student housing,” says Hertog. “The supply/demand imbalance is actually growing, as student enrolment is going up despite the disruption.”

In times of economic crisis and a difficult job market, more people choose to continue studying at post-graduate level or even to go back to university. There is a track record of information on this, as the student population increased during the GFC.

“The UK is a mature market, but penetration in Spain or Italy is still in the low single digits, so there are great opportunities in the sector because of the lack of supply,” says Taggart.

In Milan, for example, the penetration rate is 2%. “We’ve looked at Milan because the fundamentals are incredibly strong, they really sing to us,” says Quigley. “There are 230,000 students and hardly any purpose-built accommodation. We’d definitely finance schemes in Italy and Spain but we’d want to follow institutional developers we know and trust, because it’s scary to go into a market you don’t know.”

The quality of developers and operators is a crucial factor when underwriting risk in such a management-intensive sector. There are many opportunities, but the only problem, says Hertog, is that “in Continental Europe it is more difficult to obtain financing than in the UK”.

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