Major deal highlights international demand for Europe student housing

The international appeal of Europe’s cities

The appeal of Paris for student housing investors is inextricably linked to the enduring reputation of the city’s universities including Paris Sciences et Lettres, La Sorbonne and École Polytechnique, with the Paris region accounting for around 37 percent of France’s estimated 2.6 million students.

French institutional investor, AXA Investment Managers’ Real Assets, last year bought student housing and co-living operator Groupe Kley, created by alternative investment management firm Oaktree Capital Management in 2014.

The French market, which has traditionally been the domain of such large, institutional domestic capital, is set to continue to benefit from cross-border investment and Continental European markets are set to advance in the coming years, says Wride.

“Demand for high quality, affordable housing from student populations in large, metropolitan areas with top quality higher-education institutions is only one side of the story, it’s also about the attractiveness of those locations for graduate professionals; that then retains investor appeal well beyond current COVID-19 disruption.”

Wride says that in the medium-term - and following a period of intense development activity - consolidated, stabilised income producing portfolios will come to the market in southern Europe, looking to attract institutional capital.

“Given the amount of dry powder waiting to be deployed into the wider living sector, this should create a very interesting investment landscape.”

Meeting demand

As home to three of Europe’s top eight cities in terms of beds-under-construction or in planning, the UK for now remains Europe’s largest market, according to research from Bonard.

International investors have been piling into the country’s student housing, with London leading, followed by Glasgow and Edinburgh.

Blackstone’s acquisition in February of iQ Student Accommodation for £4.66 billion was the UK’s largest ever private real estate deal on record. Other significant investment in the sector includes Singaporean investor Mapletree’s purchase of several Unite Group units and last year’s £600 million purchase by German investment manager DWS of a portfolio of purpose-built assets from Vita Group.

“Demand for accommodation from a growing UK student population has been driving investment,” says Philip Wedge-Bernal, EMEA Living Research & Strategy director at JLL, pointing to an expected 27 percent increase in UK student numbers in the next decade, or 40,000 new students per year.

Global investment manager Hines and Canadian institutional investor Quadreal are jointly focusing on regional UK student housing as part of their wider European living partnership. Global Student Accommodation has joined forces with Harrison Street in London, while also entering partnerships in Ireland and Spain.

Institutional capital has also been able to trade in and out of the sector. Last year, Canada Pension Plan Investment Board sold its Liberty Living student housing platform to sector specialist, the Unite Group for £1.4 billion.

“Supply of units has picked up over the past five years, but the UK has still not been building enough to meet projected demand,” Wedge-Bernal says. “That mismatch, coupled with traditionally close bonds between universities and accommodation providers, continues to sustain investor interest.”

The immediate impact of COVID-19 on the higher education sector is evident, with uncertainty around how and when Europe’s students will return to their courses. Investors are looking further ahead, Wride concludes.