The 2021 outlook for purpose-built student accommodation

“Players in the UK, Ireland and Australia have focused on expanding their reach and strengthening their property portfolio”

Prior to the pandemic disrupting businesses across the globe, student housing had been witnessing an impressive growth each year, writes University Living founder and CEO Saurabh Arora.

When universities and other educational institutions closed, it was expected that the accommodation sector would take some of the heat. Investment in this particular asset class has been driven mainly by market potential and in 2020, during the first few months alone, nearly $10 billion was spent on the sector as per data from Real Capital Analytics.

Roughly eight months into the pandemic, investments in the student housing industry dropped considerably, although operations were in full swing across select markets around the world. Because of this, there is still that confidence that can be observed across the international market, especially in the UK and Ireland.

Market scenario

Major purpose-built student accommodation (PBSA) players in the UK, Ireland and Australia have focused on expanding their reach and strengthening their property portfolio. A report by Savills found that cross-border investment in this particular asset class accounted for more than 40% of all global investment activity.

In Europe alone, there are around 185 projects that are due to be completed in 2021, with an additional 95 projects set to open in 2022, and approximately 70% of these are likely to be delivered on time.

At the top of the list was the UK market, where Blackstone purchased iQ student accommodation for £4.66 billion from the Wellcome Trust and Goldman Sachs in one of the biggest student housing transactions globally to date. 

Germany’s Allianz is continuing to delve into the Asia Pacific region with the purchase of a two-property portfolio in Australia and the US. Also, there is a strong interest in Poland and France in terms of investment, which is predicted to double between the second and third quarters.

Meanwhile, the US tops the league tables in terms of investments, both cross-border and domestic. CA Ventures and Harrison Street have formed a new joint venture partnership to develop and acquire PBSA assets across the UK.

And finally, in India the student housing sector has been expected to witness around 35% growth between 2019-23, with investments from Sequoia Capital, Warburg Pincus and Goldman Sachs.

Outlook for 2021

Sector Growth – Good signs for raising capital

The PBSA sector appears stable otherwise, with planned investments in new housing steady during this time, and projections for a return to strong student demand after the pandemic.

When we take into consideration the prospects of student housing in a post-pandemic market, things look positive in terms of building sustainable businesses and are expected to go back to the pre-pandemic growth trajectory.

There has also been an increase in capital allocation in the co-living and BTR segment which has broadened the scope of student housing.

Latent Demand 

During the academic year 2020/21, a number of international students chose to defer their intake due to travel restrictions and safety concerns. As a result of this, there was an impact on occupancy, with a fall in demand for student beds. 

Due to this, 2021 will prove to be a huge market due to latent demand as students will now be looking to resume their plans in the upcoming academic year.

Vaccine rollout 

With news of the vaccine rollout looking increasingly positive across the globe, the market is expected to jump back in the upcoming year. And when the demand for higher education increases, we expect the impact on student housing to be fairly positive.

Conclusion

The resilience of the student housing sector is underpinned by continuing strong demand for higher education abroad. If previous numbers are anything to go by, the sector has successfully proven itself to be highly resilient in terms of quality and investment performance.

This is why we are hopeful that the year will prove to be increasingly competitive for students planning to pursue higher education abroad, especially with the UK and Australia announcing friendlier visa and immigration policies.

A key takeaway from this past year has been the swift actions taken by the higher education landscape in order to adapt to the challenges and it is safe to say that going forward the PBSA market will pick up demand.

About the author: Saurabh Arora is founder and CEO of University Living. He is a part-time sports nerd and an all-time optimist.