Robust Investor Interest Indicates: A Positive Outlook for Student Accommodation 2024

In the dynamic world of real estate, investor interest in student housing is all-time high, and it’s expected to only grow in the coming year. As we’ve noticed, despite the absence of mega-deals in 2022, the student housing industry showed resilience throughout 2023. Moving into 2024, there’s a new wave of capital pouring into the student housing space. Investors are now moving away from the office, retail and traditional residence and want to put their money into the student housing industry. Furthermore, drivers such as strong market performance, rising enrollment in higher education, and the sector’s ability to adjust to the changing dynamics are all contributing factors to this surge in investor interest. These factors not only indicate an upcoming strong year but also highlight the importance of this sector in the wider real estate landscape. Let’s have a look at some of the highlights for the sector that contribute to setting the stage for further growth and development.

1. The Sector Resilience of 2023

Student housing is identified as one of the most resilient real estate sectors, as stated by Blackstone, the biggest owner of commercial real estate in the world. “Student housing is, I think, where the opportunity is most specifically generating a lot of strong cash for us and our investors,” as universities seek more accommodations to satisfy growing student bodies and heightened demand, said Kathleen McCarthy, Blackstone’s global co-head of real estate. According to the New York Times, student housing development has continued to grow despite the recession and housing crisis. The growing university student population has increased the demand for student housing. Moreover, student housing prices increased due to a lack of supply and high demand at many universities. As per Berkadia's report, the US student housing sales volume doubled more than in 2021 and tripled from 2020. The Berkadia reports state that in 2022, $22.8 Bn was sold, which was highest in the past 10 years. This trend continued in 2023, too and is expected to grow in 2024.

Source: Berkadia; Real Capital Analytics and CoStar, 2022

In 2023, there was a significant increase in the number of students enrolled in higher education in Europe. This led to a surge in investor demand for European PBSA. Unfortunately, there was a demand and supply gap for PBSA in Europe. As a result, the potential for both professional and rental growth for quality PBSA was extremely high.

2. The Resilience Foundation

So, what is driving the Student Housing Market?  While nothing has changed significantly, investors are waking up to the potential of student housing and its robust fundamentals. Demand is at an all-time high, driven by school leavers, record participation rates, and record international student numbers. It is expected that the number of international students is set to reach 8 million by 2030. On the supply side, dedicated student housing is limited in leading education hubs in Europe and the US. For example, CBRE estimates that the UK will face a shortage of 580,000 beds in 2024, and similar trends can be seen across developed economies, leading to real pricing pressure and increasing investor interest.
The fall of EU students will continue as the demand for international students outside of the EU will continue to grow. UCAS data shows that applications for international students overall increased by 2% in the 2023/2024 academic year. This was entirely driven by non-EU students, which grew by 4% Y-OY, reaching 116,000 students. All in all, this will continue to drive an increase in university applications and a strong demand for PBSA.

3. Shift from Traditional Sectors to Student Housing Sector

Investing in unorganised real estate is falling out of favour. In the residential sector, the subsector of student housing is attracting more investment than ever before. With housing supply failing to keep up with population growth and house prices growing faster than wages, there’s an ever-growing number of renters, putting further strain on the broader rental market. In addition, students have always been more location-sensitive than professionals or families, so they’re willing to pay more for modern purpose-built student accommodation that’s close to the university – driving outperformance.
Traditionally, student housing was largely limited to on-campus dorms. But as universities grew and faced budget crunch and an increasing number of students, the need for off-campus housing increased. Private investors and developers recognised the opportunity to capitalize on this growing market segment. When it comes to student housing investment, there are both financial benefits and personal benefits. This allows college students to focus on their academic potential while reducing their long-term debt. As the CRE (Commercial Real Estate) market evolves, supported by global economic cycles and shifting consumer preferences, student housing has emerged as one of the most stable and promising investment opportunities. Not only does it capture the timeless nature of education, but it also provides investors with an opportunity to shore up their portfolios against volatile economic cycles.
In short, student housing in an investment portfolio offers protection from potential declines in other CRE industries. Student housing’s relatively stable demand is based on annual student enrollment cycles and an apparently insatiable global demand for quality education. This demand makes student housing an attractive investment for investors looking for both stability and growth.

4. Market Trends and Opportunities

Student housing investments offer a unique set of benefits compared to other types of real estate. These benefits are driven due to the unique dynamics of higher education and the unique needs of students. So, let’s explore some of these benefits:

1. Student housing often offers higher returns compared to traditional real estate because of the unique rental structures in place. Typically, students rent by the bed rather than by the unit. This means that a single apartment or house when divided appropriately, can generate multiple streams of income. Additionally, the consistent and predictable demand ensures occupancy rates remain high.
2. The U.S. remains the largest student market and most developed country in the world. The  U.S. student housing prices have repriced at a faster pace than European markets, with prices down between 10% and 15% from pre-recession highs, indicating that transaction activity is beginning to return. As a result, investors are looking to add the US Market to their portfolio.
3. Europe, on the other hand, is an emerging market with a chronic shortage of student accommodation in top education cities. According to Savills, more than 93,000 student accommodation units will be constructed in continental Europe in the next 2 to 5 years. However, this is extremely low compared to the historical annual supply of 25,000 to 50,000 beds in the UK and will only compensate for the projected increase in student numbers rather than increasing net supply. For example, Italy has one of the world's worst bed shortages at 80,000 beds per annum. The opportunities for asset managers with experience in hands-on development are enormous.

In conclusion, it is predicted that 2024 will be a year of quality for student housing investors and lenders to continue to seek exposure to the ever-evolving yet intricate student housing market. The rising investor interest in the student housing industry, coupled with the industry’s resilience, augurs well for the future. Global trends are continuing to shape the higher education landscape and student preferences. Investors stand to gain from positioning themselves strategically in this ever-changing market. In essence, investors are not only looking at a bright year for student housing, but it’s also a transformative time as the industry adapts to meet the evolving needs of today’s students. In case, you are looking for a sustainable and great source of income, you may list with us. Also, we would love to see you here again at amber news.