student housing
investors wake up
to student housing
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A recent flurry of major student housing deals in the UK has put
the asset class firmly in the spotlight and more is on the way
By marianne korteweg
E
‘Investors like the fact that the student housing sector is
driven by demographics rather than boom and bust’
philip hillman, jll
1. felix bauer, ceo of dref (left) and andrew thornton, ceo and co-founder of internos global investors 2. wouter onclin, research and programme
manager, the class of 2020; rainer nonnengÄsser, managing director of development, mpc capital; philip hillman, director of student housing, jll
3. andrew thornton 4. wouter onclin 5. philip hillman (left) and felix bauer 6. full panel 7. felix bauer, philip hillman and wouter onclin
Hotos: Philippe Fitte
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urope’s student housing market has become a
hotbed of activity as global investor interest in alternative real estate surges, it emerged from an
investment briefing on the asset class which was held at
the Mipim fair in March. A spate of major deals in the UK
has put the asset class firmly on the radar of global institutional investors seeking to deploy large sums of capital
into stable investments in Europe.
‘There’s immense investor appetite for the sector, it’s
been driven by interest in alternative investment markets,’ Philip Hillman, lead director of student housing
and higher education at JLL in London, told the briefing,
which was organised by PropertyEU. ‘Investors are increasingly wanting something different to offices, shops
and industrial. I think they like the fact that the sector is
driven by demographics rather than boom and bust. And
I really do think that we’re going to see a number of very
substantial transactions for the remainder of this year.’
Hillman described the last two weeks of February as ‘an
extraordinary period’ in terms of UK deal activity. ‘There’s
been more deals in those two weeks in the UK than over
the whole of 2014,’ he said, referring specifically to CPPIB’s takeover of Liberty Living for £1.1 bn (€1.5 bn) and
the sale of the Carlyle Pure Student portfolio in Central
London to Russia’s LetterOne for £532 mln (€732 mln).
‘There were £2 bn of transactions in the UK in 2014.
We’ve seen £2.5 bn of transactions so far this year and
another £1.5 bn is under offer or pending so we’re going to
see at least £3.5 – £4 bn of transactions this year.’
The CPPIB and LetterOne deals underscore the strong international investor interest in the sector which has come
a long way in the past two decades, said Hillman, who has
been involved in the UK student housing market for the
past 25 years. ‘We’ve seen the sector grow from almost
nothing to a major global asset class. Some 80% of the investment in UK student housing has come from overseas.
We’ve seen a lot of investment from North America, with
the likes of Goldman Sachs and Canadian pension fund
PSP investing heavily and working with Greystar. We’ve
seen investment by Russian money, in the guise of LetterOne. And we’ve seen investment from Gulf investors so it
really underscores how global the market is. I think we’re
going to see continued diversification as we move on.’
Direct-let properties
Yields achieved on the latest deals also illustrate that investors are prepared to move up the risk curve to direct-let
student properties, Hillman pointed out. The sale of the
Carlyle Pure Student portfolio in Central London to LetterOne reflected a net initial yield of 4.5%. This was followed by two single-asset deals of over £100 mln and £70
mln in central London – both reflecting NIYs of around
5%. Hillman: ‘We’re seeing a big premium for portfolios,
in the order of 50-60 sometimes 70 bps. People are playing the game of wanting scale and critical mass. Some
are saying that’s too expensive and are focusing on singleasset puchases – but in general there’s a broad swathe of
overseas money targeting the sector and I think that’s going to be a continuing trend.’ Both the Russians and the
Canadians have the appetite to do more, he added.
Andrew Thornton, CEO and co-founder of European asset manager Internos Global Investors, agreed that there
is ‘a really good fundamental dynamic’ in the student
housing space. ‘I think one of the appeals of the sector is
that it is different to other asset classes. The residential element is important – I think that investors saw in the last
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subsection
STUDENT HOUSING vs residential
ANNUALIZED TOTAL RETURNS IN SELECTED
COUNTRIES (%), LOCAL CURRENCY
COMPETITION FOR MILLENNIALS is heating up
Alternative sector grows
the most in 2014
Source: ipd
REPORTED IN 2014 IN EUROPE
€3.3 bn in deals and transactions
Note: data includes most, but not all universities and colleges: as publicly available
Research from JLL shows that investment by UK pension
funds in alternative real estate assets will amount to 20% or
more by 2020 compared with 3-5% at present. The firm also
predicts that around 30% of all commercial property transactions in the UK will involve alternative assets by 2020.
Source: class of 2020
Source: class of 2020/studentmarketing 2014
Source: JLL
121,770 student beds in planning
59,970 student beds in development
cycle that it was more robust than the commercial sector.’
Within Europe, the UK has seen ‘a terrific flow of activity’,
he noted, ‘but markets such as Germany and others are
still ripe for investment and that’s really what’s interesting us right now’. Internos recently teamed up with the
Somerston Group family office to acquire a 27.5% stake in
Deutsche Real Estate Funds Advisor (DREF), a real estate
investment manager specialising in the German student
accommodation market (see box below).
Differences between UK and Germany
Discussing the differences between German and UK student housing, Felix Bauer, CEO of DREF with experience
of both markets, said the UK was more demanding from
an operational point of view. ‘In the UK students change
every year. It’s much less operational in Germany, we
have students staying two to three years in one student
home and so we have much less turnaround, probably
around 25%.’ As a result, investors in Germany see student housing as more of a residential asset class with a
slightly higher rent, he noted. Research carried out jointly
with JLL found that student housing investment volumes
in Germany amounted to €2 mln last year compared with
£2 bn in the UK. ‘The German market is behind but will
hopefully catch up in the next five-six years,’ Bauer said.
Rainer Nonnengässer, managing director of real estate
development at Hamburg-based alternative investment
manager MPC Capital, highlighted two key differences
with the UK. ‘The German market is immature in its development – that’s one thing. Secondly we have the biggest student market on the continent after France with
2.7 million students. But we have a limited and outdated
Internos buys into DREF, issues bond on frankfurt stock exchange
Internos Global Investors has teamed up
with the Somerston Group family office to
acquire a 27.5% stake in Deutsche Real
Estate Funds Advisor (DREF), a real estate
investment manager specialising in the
German student housing market. The Bauer
Group will remain the majority shareholder
in DREF following the transaction. Andrew
Thornton, CEO of Internos, will join DREF’s
advisory board while Shaun Robinson, CEO
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of Somerston Capital, which advises and
manages the assets of the Somerston Group,
will join DREF’s management board. DREF’s
CEO Felix Bauer described the tie-up with
Internos as ‘a big step’, particularly in view of
Internos’ strong asset and fund management
capabilites in Germany.
In a separate move, DREF and Internos have
launched a bond issue on the Frankfurt stock
exchange to finance student residences in
Germany, which Bauer said is being ‘well
received’ by institutional investors. ‘The
offering will be a showcase for investors of
the student housing asset class in Germany,’
he said. ‘There is still a significant
opportunity to increase institutional
investment into student housing in Germany
and we very much see this as a long-term
strategic shift that we would like to exploit,’
said Internos’ Thornton.
offering and there’s a huge gap between demand and supply.’ In terms of regulations, student housing in Germany
is subject to the same building requirements as residential property, ‘which makes every square metre more costly than in the UK on a like for like basis,’ he added.
New German brand
MPC Capital, which has some €2.9 bn of assets under
management, is currently rolling out a new student housing brand in Germany under the name StayToo. Two projects have so far been launched, in the cities of Nuremberg
and Bonn. The Bonn project involves the conversion of an
office property into around 160 apartments. ‘We intend to
roll out 1,000 beds for the 2016 academic year and a similar number for the year thereafter. We’re applying a hurdle
of a minimum 10,000 students per residence which leads
us to 55 cities in Germany,’ Nonnengässer said. MPC is
concentrating on two types of location: metropolitan areas like Hamburg, Frankfurt and Cologne and traditional
university cities like Munster, Heidelberg, Darmstadt
and Freiburg. ‘We are currently looking into both,’ Nonnengässer said. ‘We aim to build up a portfolio blending
the two: the more liquid metropolitan spots and the pure
university spots, we feel both are economically attractive.’
The market opportunity in Germany was ‘obvious’ he
said. ‘We have 2.7 million students in Germany, the vast
majority of which have to organise their own accommodation. Most of them crave a type of accommodation that
combines individuality, community and affordability.
This is the value-add formula underlying our approach.’
JLL’s Hillman sees the UK student housing market moving
student housing
towards a multi-family approach along the lines of the US,
where multi-family is the largest institutional asset class
for pension funds. ‘While we’ve spent much time arguing that student housing is an asset class in its own right,
what the student housing deals in February demonstrate is
a move towards a multi-family approach in the UK. These
investors want to do PRS, they want to do student housing.’ He added: ‘The Americans laugh at us when we say
the UK market is more mature than in Europe, they think
our market is still very immature. We still don’t have a big
multi-family portfolio offering for investors.’
international students
Much of the appeal of the student housing sector for institutional investors lies in the growing numbers of overseas students heading for Europe. ‘International student
numbers are rising all over Europe,’ said Wouter Onclin,
research and programme manager at the Class of 2020, a
non-profit student housing foundation. ‘That is creating an
interesting new dynamic in how people study and live and
how cities and universities market themselves to students.
We’re seeing a very competitive market emerging, cities are
competing for talent and putting this at the heart of their
economic agendas.’ Foreign students currently account for
less than 20% of the total in Germany, compared with between 85-90% in some cities in the UK, notably London.
Universities are also upping their game and becoming
more transparent, Onclin noted. ‘Students can book their
programmes online. They travel from Greece to Germany and from Finland to Spain, they’re coming from outside Europe and this is having a big impact on the type of
student housing on offer. Students are staying in places
for a shorter amount of time, doing undergraduate study
in one city and a graduate programme in another.’
In addition, universities are becoming more connected,
Onclin said, forming alliances and networks ‘much like
in the airline industry’ which is creating easier access for
students. The growing occupier base is one of the key factors in student housing’s favour, said Internos’ Thornton:
‘We like the dynamics in the student market. It does not
compete with residential for size and opportunity but if
you look at the activity in the UK, there isn’t a private rental
sector (PRS) that you can access readily so it’s probably one
of the next best things and I’m sure
that was on the minds of the Canadisign up now for 2015
ans when they made their move (into
investment briefings
the UK, ed).’ JLL’s Hillman agreed: ‘A
9 April | Germany
lot of investors have struggled to find
22 April | France
PRS stock and student housing has
5 May | European debt finance
fulfilled that opportunity. It’s not pure
12 May | Southern Europe
residential but it’s got certain similar
For more information,
dynamics and certain similar characgo to www.propertyeu.info
teristics that are driving it.’
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