The market for student accommodation in the UK, the hottest market outside North America in recent years, is entering a lull period amid the Covid-19 crisis. Growing oversupply could stress prices in the near term, analysts said.
The market has an estimated £1 billion (US$1.27 billion) of excess stock, according to property consultancy Knight Frank, mitigated by some construction delays due to a slump in demand as the pandemic kept students away at home and universities turned to online teaching.
“There are pressures building for operators,” said Tom Leahy, senior director for Europe, Middle East and Africa analytics at Real Capital Analytics (RCA). “Pricing trends in the listed sector do imply that we should see a fall in the direct market.”
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
The global restrictions on travel mean student accommodation providers who are most dependent on demand from overseas students are likely to be under greater stresses than other owners with a focus on the domestic market, he added.
The UK is the second largest market for purpose-built student accommodation, according to Knight Frank. Rapid growth over the last decade means that the sector has expanded into a £65 billion pool after private equity firms and sovereign wealth funds waded into the asset class.
Blackstone, one of the most bullish investors, paid £4.66 billion in February to acquire iQ Student Accommodations in the largest private UK property transaction deal, according to Savills. The purchase came before the UK’s first lockdown in March.
A recent Knight Frank survey of six of the largest UK student operators who control 170,000 beds or 25 per cent of the supply showed that bookings average could be 77 per cent for the autumn semester. None of the stock is distressed and pricing is holding up well, said Neil Armstrong, joint head of student property.
Still, some challenges remain, he added, as construction delays earlier this year suggest some developers will struggle to complete their projects before the start of the academic year in September and October.
“We are aware of one or two development sites that have stalled,” Armstrong added. “For operational property, the exact position on where operators income will be for the next year is still not known.”
Despite the current market wobble, Singapore-based private equity firm Q Investment Partners is thinking long term by proceeding with a plan to raise £30 million from Asian investors to build as many as 2,000 rooms by 2022.
“We are launching it now because we are seeing investors in Hong Kong are particularly excited and have appetite to invest in the developed markets,” co-founder and chief executive officer Peter Young said. “From those investor profiles, we are seeing a mode of appetite to invest in real estate that has the resiliency.”
The UK is the second most popular destination for international students, with mainland Chinese, Indians, and Hongkongers making up the biggest contingents seeking British university spots this year, according to admission statistics.
For this academic year, a record 515,650 students have received their places, an increase of 4 per cent from last year.
QIP, which has managed over US$300 million in real estate assets, is seeking fresh capital to acquire five assets in London, Bath and Edinburgh with the intention of converting underperforming properties into high-demand student accommodation. The fundraising will close in six months, Young added.
“The UK student housing has particular unique attributes,” he added. “Certainly with the pandemic, the journey of the sector puts it at the very top of the tree when one looks at other real estate markets that may have been impacted pretty badly.”
More from South China Morning Post:
- Hong Kong expats get windfall amid coronavirus gloom: rents likely to fall 10 to 15 per cent in world’s costliest place for foreigners to live
- Hongkongers eye prime London homes to accommodate their children studying in British universities
- Vastly different Hong Kong, Singapore housing markets find common ground in booming co-living segment
- Foreign buyers are changing their preferences in UK housing market as pandemic stokes recession risks