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Student Accommodation as a Global
Asset Class Conal Newland
National Director,
Student Accommodation Services
11 June 2014
Presentation Outline
• What do we mean by institutionally acceptable student accommodation?
• Key investment considerations for student accommodation as a growing asset class
• Summary of recent global student accommodation transactions
• Globalisation of higher education
• Current trends in the supply of accommodation
• Future drivers of demand for accommodation in Australia
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Defining institutionally acceptable student accommodation
• Location – in proximity of more than one educational provider, or virtually on-campus
• Scale – typically 100 plus bedrooms
• Purpose built halls of residence – in the UK significantly more new build than refurbished
• Competent professional management
- Operated by the owner, or outsourced to a third party
- Safety and security of students key consideration
• Relationship with University preferable, but not essential
2
Student Accommodation as an Asset Class
3
Student housing has outperformed other commercial real estate sectors in the US and the UK – the key appealing attributes of the sector are:
Student numbers
continue to
increase – the
sector has proven
to be counter-
cyclical
Strong rental
growth in recent
years
High occupancy
levels relative to
other mainstream
commercial
property
investments
Favorable
demand/supply
imbalance
US HE enrolments during recessions
4
Rent Growth - UK Student Accommodation Market
Source: NUS/Jones Lang LaSalle Research
5
Strong occupancy in the US and the UK
6
7
Global student housing transaction volumes have never
been higher
Student housing private sector transaction levels
UK US
• 2012 GBP 2.7 billion USD 3.9 billion
• 2013 GBP 1.985 billion USD 2.975 billion
• May 2014 GBP 825 million
8
9
6%
7%
8%
9%
10%
11%
12%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
US Real Estate Yields %
Office
Student Housing Multifamily
Industrial
Structural
Compression
2%
4%
6%
8%
10%
12%
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
UK Real Estate Yields %
London City Office
Student Housing
London Prime Houses
London Prime Units
Structural
Compression
• US cap rates now average prime 5.75-6.0%, secondary 7.25-
8.0%)
― Historically traded at 94bps premium to multifamily and
now at 36bps despite strong investment activity in
multifamily sector
• UK yields slightly lower than the US but a narrower spread
to other asset classes than seen in the US
― Reflects bigger supply/demand gap and perceived lower
risk of concentration of assets in major UK cities
Source: Jones Lang LaSalle
Source: Jones Lang LaSalle
Student accommodation yield compression
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2012 Nido and UPP UK transactions The Largest on and off campus deals ever in the sector
Nido Platform Sale
• Round Hill Capital purchased the company including
the three central London assets for circa £415 million
• 2,521 beds across London and plan to grow the
business into a global operating platform
UPP Sale
• The Dutch pension fund, PGGM, completed the
purchase of Barclay’s Capital majority stake in UPP
• 26,000 bedroom portfolio
Investment Landscape – buyers and sellers in USD
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UK Student Accommodation Market – Who’s Investing • UK Institutions
- Looking for FRI Leases or ‘strip income deals’ and are adverse to occupancy risk
- Prudential / AVIVA / Legal & General / LaSalle Investment Management
• Overseas Investors
- Looking for scale and a see London as a stepping stone into mainland Europe
- GIC / Oasis Capital Bank / Blackstone / Carlyle
- American REITS
• University Players
- On campus development
- UPP / ULiving / Campus Living Villages / Balfour Beatty Student Accommodation
• Specialist Funds
- Direct and indirect investment
- Cordea Savills / Beech / AUB / USAF
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14
Rapid global growth in student numbers worldwide as well as an increase in international student mobility
Globalisation of Higher Education
15
US, UK, Australia, Germany and France account for 49% of international students
The US and the UK are top destinations for students
17
Over one half of international students come from Asia
Asia is the key sourcing region of demand
Summary of student mobility trends
• The number of students enrolled in worldwide Higher Education forecast to double to 262 million by 2025.
• 0.8 million international students in 1975; 3.7 million in 2009 – fourfold increase. Forecast to reach over 7.5 million by 2025.
• Since 1995 the annual global rate of growth in student mobility has been around 4.8%.
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An emerging global market for Higher Education
• An increasing number of mobile, affluent, international students
• Universities marketing on a global basis
• Developer / operators of student accommodation increasingly global in their ambitions
• Increasing global capital movement investment in the sector
19
UK Typical en-suite bedroom
20
Source: Uliving, Willmore Iles – University of Hertfordshire
UK Typical studio
21
Source: Uliving, Willmore Iles – University of Hertfordshire
UK Typical townhouse bedroom
22
Source: Uliving, Willmore Iles – University of Hertfordshire
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UK Townhouse kitchen and dining room
High density Student Accommodation in Asia
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Current trends in the design of new accommodation
• Accommodation mix to attract returning students • Affordable offerings – incorporating smaller rooms and non en-suite • A range of accommodation types and price points within each property
• Environmental considerations – BREEAM / Green Star
• Twin share accommodation
• Out of term income including conferencing opportunities • High quality communal areas including large shared kitchens
25
Europe – Total Enrolments and Total Supply
The statistics below show the percentage of students that reside in purpose built student accommodation in relation to total student numbers:
• UK – 29%
• France – 11%
• Spain – 7%
• Italy – 3%
• Sydney – 8%
• Melbourne – 5%
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Provision of PBSA across continental Europe
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Changes to UK HE funding policy
• Tuition fees could be set from £6,000 - £9,000 from September 2012
- 75% charged full £9,000
- Average £8,600
• Reduced contributions to non-STEM subjects
• Capital contributions halved
• Teaching grants cut
• Cut backs on publicly funded research
• 50% increase in cost to attend University
• Direct government funding replaced by tuition fees and loans payments
29
Short term predictions for student accommodation
• Student numbers will fluctuate around the introduction of new fees
• Modest rental growth following implementation of new fee regime
• More students living at home but not a massive step change
• Strong investment focus on top quality opportunities
• Student accommodation will continue to
compete against alternative land uses,
such as residential development
Medium term predictions for PBSA in Australia
• New University funding will settle to the new “norm”
• Strong focus on PBSA development next 2 – 3 years
• Transactions will increase and yields will stabilise
• New operators / investors will enter the market
• Demand for high quality academic facilities to justify tuition fees will extend across to residences
• Increased JV activity from universities
• Partnerships may extend into academic
accommodation too
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Available to download from www.joneslanglasalle.co.uk/studentaccommodation-highereducation
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Conal Newland
National Director
Student Accommodation Services
+61 422 406 611
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