Embrace ESG to unlock investment on the continent

Sustainability was a ‘nice to have’. With real estate investors now placing an ever-greater emphasis on ESG credentials, it’s now a case of ‘need to have’.

Amro’s Madrid PBSA project | PBSA News
Amro’s Madrid PBSA project.

The goalposts have changed dramatically for purpose-built student accommodation (PBSA) developers and operators who until quite recently might have regarded sustainability as a ‘nice to have’. With real estate investors now placing an ever-greater emphasis on Environmental, Social and Governance (ESG) credentials, it’s now quite rightly a case of ‘need to have’, and those developers and operators who fail to keep pace on sustainability risk finding themselves locked out of funding markets.

By Raj Kotecha, Co-founder and Managing Director, Amro Partners

Nowhere is this more true than in the European student housing market where there’s currently huge opportunity for growth. International student numbers are on the up amid a widespread undersupply of purpose-built student housing, bringing some solid opportunities for investors – and we can now be confident that the pandemic has done little to dent demand long-term. On the contrary, the trend towards a sharing society and on-campus living is stronger than ever, tied to the unwavering student preference for face-to-face teaching and the experience of living in a bustling European city.

Raj Kotecha, Co-founder and Managing Director, Amro Partners | PBSA News
Raj Kotecha, Co-founder and Managing Director, Amro Partners discussing ESG.

Yet student expectations in most cities are not being met by the existing provision, which is often old, poor quality, and provides little in the way of facilities and services that together create this sought-after ‘living experience’. We expect growth in international student numbers to gather pace over the coming decade in many European countries, driven by the rapidly increasing availability of English taught courses at those universities.

The provision of purpose-built accommodation on the continent is already limited and in spite of a growing development pipeline, we’re not going to come close to meeting demand. There’s a significant gap to fill, but we believe that only those developers and operators with the expertise to deliver properties with high ESG credentials will be able to fill it.

Whilst students across Europe are increasingly motivated by decarbonisation it’s the approach of capital providers that is proving to be the real catalyst for change. Through their own commitment to ESG, equity and debt funders are insisting on greater scrutiny of sustainability considerations across the lifecycle of real estate assets, from the sourcing of materials, through to development, operation and management. So far, so good. But what about the additional costs? There is concern that developing a net zero asset will come with a higher development cost and this is true. However, this will be offset by lower operational costs and an improved yield for the completed asset. We also believe that over time, students will increasingly seek to reside in properties that are ‘green’ and that this will drive higher rents and occupancy versus a comparable ‘brown’ property.

Institutional investment activity is only now really taking off, fuelled by portfolio and single property acquisitions and forward funding deals. The volume of capital that investors are currently seeking to deploy on assets with strong ESG credentials is already far greater than the volume of suitable available opportunities – and investor appetite continues to grow.

That’s one good reason why our NZC commitment is at the heart of our European expansion plans which will see Amro enter the Netherlands, Belgium and Germany in the next 12 months. We plan to double our existing portfolio from 2,500 units to 5,000 by 2024 through acquisitions in new markets and further growth in Iberia, to become the leading portfolio of residential assets in Europe from an ESG perspective. All our projects, existing and future, will achieve a BREEAM Outstanding, Fitwel 3* and a WiredScore Platinum rating, making them the most sustainable student housing assets in Europe on completion.

We’re analysing several new acquisition opportunities ranging in size from 150 to 500 beds in European cities with healthy and growing student populations, with our commitment to Net Zero central to every business decision. Not only do our funding partners and our student tenants expect it, we’re confident it will deliver enhanced returns, planning benefits and stronger demand for our developments. Net zero carbon isn’t just the right thing to do, it makes sound business sense too.