With almost all travel restrictions across Europe now lifted and face to face learning back on the agenda, the movement of students across borders is beginning to return on a mass scale. However, despite a return to ‘normal’ levels being on the horizon, we cannot ignore the detrimental impact that the pandemic has had on the purpose-built student accommodation (PBSA) sector over the past two years. Combined with the current geopolitical situation, large government debt piles and the ongoing impact of Brexit, many are questioning the long-term resilience of the PBSA market.
By Brian Welsh, Managing Director / Head of Student, Round Hill Capital
In a bid to attract and retain new tenants in the face of such disruption, leaders in the PBSA sector are embracing new practices more than ever before. Tenant experience continues to be of utmost importance, as a new generation of students with higher expectations of their university experience drive demand for quality and inclusive spaces. While location, room size and specifications remain fundamental considerations, young people also want to feel part of a thriving community and forge new networks as part of their tenant experience.
It is no longer just the physical space which needs to be considered. The range of amenities provided, from lounges and gyms to co-working and co-studying spaces are all becoming increasingly relevant. Our vertical integration with Nido Student, a well-established, award-winning international student housing operator, has allowed Round Hill Capital to stay in tune with the nuances of occupier needs and adapt our offering in line with market demand. For instance, students living in Nido accommodation have access to communal areas optimised to encourage social interaction, reduce feelings of loneliness and minimise stress – these spaces include cinema rooms, gaming rooms and onsite gyms.
Investment is also needed if we are to fuel the innovation needed in the sector. Despite increasing investor appetite for PBSA, there remains a structural shortage of PBSA beds across the UK and Europe. In European student hotspots like Maastricht, whilst the area’s student population is expected to grow by 9% by 2025, there is an absence of high-quality, affordable student housing. Tactically deploying high quality PBSA across such markets should be at the top of the agenda for industry leaders. What’s more, PBSA is a relatively new asset class in some EU jurisdictions, and investors should not ignore the price elasticity of PBSA demand amongst students in these areas choosing a modern accommodation solution with a wide array of amenities, over simply renting a poor-quality living space.
With a secure pipeline of assets around Europe and a strong track record in the UK, Round Hill Capital is continuing to deploy capital in the PBSA sector to help meet this demand, currently focussing on a €1bn+ PBSA joint venture with CPP Investments, which has already started acquiring assets in European countries including Spain and the Netherlands.
Whilst overall an exciting investment asset class, there are also emerging headwinds around land scarcity, limited stabilised investable stock and increasing construction and energy. Investors and local developers will need to work closely if they are to continue developing new stock against such a backdrop.
This is exactly the model that Round Hill Capital has been rolling out through our CPP Investments joint venture, one of the largest Pan-European student accommodation mandates in history. Working with partners with boots on the ground in key locations will be essential for investors with a global footprint to have a deep, localised understanding of property markets across the world.
Looking ahead to 2022 and beyond, we expect to see PBSA portfolio transactions continue to rise, underpinned by a continued growth in student numbers, in the short-term possibly buoyed by previously deferred students flocking to university to begin their careers in higher education. The counter-cyclical characteristics of the asset class that we saw during the GFC once again coming to investor attention.
Leaders in the PBSA industry need to ask themselves whether they are responding to the opportunities that arise from increasing student demand. We are confident that Round Hill’s reputation as a high-quality, affordable investment and management firm will continue to build its prominence as a leader in the PBSA sector, with a growing portfolio of student housing across Europe.