2023 was another resilient year for student housing, and although we didn’t see the mega-deals of 2022 the sector remained strong. As we enter 2024, momentum is picking up with significant amounts of capital targeting the student housing sector. This may sound like a bold prediction, but with new money seeking a home and seasoned investors moving away from office, retail and traditional residential, I’m confident for the future.
Strong fundamentals underpinning a robust asset class
So, what’s driving this? Nothing has fundamentally changed, but as investors wake up to student housing’s potential, its strong fundamentals are shining through. Demand has never been greater, with more school leavers and the highest participation rates ever, coupled with record numbers of international students, set to reach eight million globally by 2030.
The supply side looks equally compelling, with dedicated student housing constrained in leading educational hubs across Europe and the U.S. For instance, the UK will have a shortfall of 580,000 beds in 2024 according to CBRE, with similar trends across developed economies. As a result, we’re seeing real pricing tension and growing investor appeal.
Shift from traditional sectors to student
It’s no secret that office and retail, traditionally the bedrock of real estate investing, are falling out of favour. This trend has been well documented, with student a real beneficiary.
At the same time, within the residential sector itself, the student subsector is attracting ever more investment. As housing supply fails to keep pace with growing populations and house price growth outpaces wages, the number of renters has increased, placing ever more pressure on the wider rental market. At the same time, students have remained more location sensitive than professionals and families, and as a result have been willing to pay a premium for modern purpose-built student accommodation located close to campus, driving outperformance.
Investor focus
When it comes to investors, we’re seeing bigger and more sophisticated capital partners entering the sector, looking for asset managers who can invest globally with a strong track record – just as GSA has done, growing its U.S. footprint from zero to 46 assets across 23 states in just two years. Investors also need a full-service offering: asset managers with the ability to underwrite, develop, refurbish and convert, as well as transact. GSA has delivered in this respect, refurbishing over 5,500 beds across the UK and U.S. in 2023 and completing developments in the UK, Ireland, and Australia in the past 18 months.
The ability to add value to existing portfolios through ESG-led improvements is also proving attractive, just as GSA has done at St Crispin’s House in Norwich. This landmark project repurposed a 1970’s office building, with significant carbon savings. Simultaneously, investors are placing increasing value on the operational side, with students demanding a first-rate experience. Being part of The Dot Group puts GSA in a unique position here, with our global operating partner Yugo providing us with local, national and regional access.
We’re also seeing lenders looking to increase their exposure to student, and despite constrained conditions, borrowers with the right track record and portfolio can continue to secure favourable financing. We’ve been very successful in this regard, refinancing a total of $2.2bn globally in the past two years, despite the turbulence within capital markets.
Activity and market trends
Looking at 2024 we’re expecting an upturn in activity, as this new wave of capital enters the market. For GSA, that means a continued focus on quality over quantity, building the best portfolio in the most in-demand locations.
We’re prioritising the key markets of continental Europe and the U.S. – both home to 19 million students. GSA has the right capital structure and ability to capitalise on an uptick in transaction activity here, along with the development and refurbishment capabilities needed to succeed.
The U.S. continues to have fantastic potential as the biggest student market globally, but it also the most mature. U.S. student housing has repriced faster than European markets, now down between 10% to 15% from previous highs, so transaction activity is returning. That’s why we’re looking to add to our portfolio in a very targeted way; consolidating our presence in key markets by buying first rate assets to create further economies of scale.
Continental Europe, meanwhile, presents a compelling development opportunity, as an embryonic market with a chronic undersupply of student housing in leading educational cities. Savills expects over 93,000 student beds to be built in continental Europe over the next two to five years. However, this is incredibly low when compared to historic annual supply of between 25,000 and 50,000 beds per year in the UK and will merely offset the expected growth in student numbers, rather than improving net supply. For instance, Italy demonstrates one of the most acute situations, with shortfall of 80,000 beds. For asset managers with hands-on development expertise the opportunities are huge.
Positioned for success
We predict that 2024 will see a flight to quality in the student sector. As investors and lenders seek ever-increasing exposure to the dynamic yet complex student housing market, their efforts put GSA in an enviable position. There are major opportunities for dedicated asset managers who have global capabilities, a multi-faceted approach, leading portfolio, and strong track record and relationships. That’s why GSA is ideally positioned, not only to benefit from, but also to drive the trends shaping student housing over the coming year.
