Student accommodation may have been badly affected by the coronavirus pandemic as universities switched to classes online due to coronavirus restrictions, but that has not stopped deal making in the segment, with one investor acquiring major assets in the US.
Last month, Global Student Accommodation Group (GSA), which specialises in purpose built student accommodation, bought 27 properties in the US, adding 8,000 beds across 19 cities and 18 states. The property was acquired from UCAL, a joint venture between University Communities and the California State Teachers Retirement Fund.
The transaction, whose value has not been disclosed, marked GSA’s entry into the US following properties in Australia, the United Arab Emirates, Germany, Ireland, Japan and Spain.
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“In the next 18 months, including this transaction, we anticipate building a US portfolio of US$1.5 billion to US$2 billion,” said Will Rowson, chief executive of GSA Investment Management. “It’s the first time that we are moving into the world’s largest student housing market and we believe it is the first time an international owner and operator has moved into the US market.”
One market observer, however, cautioned against investing in purpose built student accommodation as conditions are likely to remain challenging, at least in the near term.
Student accommodation that is highly dependent on foreign students will have to contend not only with the situation of their home market, but also the economic performance and geopolitical issues with the countries of their target students, according to Richard van den Berg, a Singapore-based fund manager at M&G Real Estate, part of a UK-based group with about £271 billion (US$371 billion) of assets globally.
“Students’ accommodation is still a niche,” he said. “The sector has a solid ground, but it needs to be mainly domestic. Geopolitical tensions and economic performance also impact the segment.”
“If economies of China, Singapore and Malaysia are not doing well, it will make it unaffordable for parents to send their children over to other countries to study so the market becomes dependent on external factors,” he added.
This scenario seems to be playing out in Australia. As of November, the number of international students in the country dropped 9 per cent to about 685,000 from a year ago, according to official data. Chinese students accounted for 28 per cent of the total, and their numbers too had fallen by 10 per cent.
Landlords in Australia are likely to have lost an estimated A$715 million (US$552 million) in rents owing to travel restrictions, according to property portal Juwai.com. The sector could lose more money given that trade and political relations between Canberra and Beijing have been worsening over the origin of the coronavirus and tensions in the South China Sea.
GSA, however, is betting on the resilience of the US market. There were 19.7 million college and university students in the US as of the fall semester last year, with 1 million of them non-resident students, according to the latest official data.
University students in the US are also expected to grow by half a million in the next five years, Rowson said.
“The US market has held up really strongly, bolstered by 95 per cent of the student population being domestic students, and the portfolio achieving 96 per cent occupancy, which is remarkable given the challenge of the year,” he said, adding that the demand for higher education will continue to be strong and people still value the student experience.
Marcus Roberts, head of European investment and development at Savills Operational Capital Markets, also considers the segment a defensive asset class which is likely to recover once travel restrictions ease.
“The UK and Europe will remain one of the world’s most popular student hotspots and demand from students across the globe for high-quality education is expected to rise once travel restrictions have been lifted,” he said.
“The sector’s resilience is demonstrated by the number and scale of recent transactions and large portfolios currently on the market which are continuing to draw strong investor interest.”
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