The student accommodation sector would weather a UK exit from the EU better than commercial property, new research by CBRE has predicted.
Brexit would tighten visa requirements and hike fees for EU students – but any fall in occupancy would be off set by demand from outside the EU, where students are clamouring for spots in UK universities and are willing to pay more for the privilege, the research shows.
“The student accommodation market will potentially prove more resilient to Brexit than commercial property, where there is considerably more uncertainty around occupier decisions,” it says. “If the rental market remains stable, the student accommodation investment market is likely to follow suit and prove less volatile.”
There are many reasons for this – one of which is the oversubscribed university system. In 2015, there were 7.3 applications from overseas (EU and non-EU) students for each EU student accepted, and 7.9 for each place accepted by a non-EU student – which CBRE says shows that “cost is clearly not the only consideration”.
James Hanmer, director for student accommodation at Savills, agrees.
“People still want a degree from a UK university, and that’s not going to change,” he says.
Diverse income stream
Appetite for UK higher education persists among investors.
Although some UK-based firms are delaying investment until after the referendum, the report says international players are still attracted to the “strongly diversified” income stream provided by UK student accommodation, and are largely undeterred by a potential Brexit.
This is evidenced by the sale of the Mansion portfolio of 25 student accommodation assets to Mapletree for £417m in March, and Brookfield’s first foray into the student digs market earlier this year with the purchase of Avenue Capital’s UK portfolio for £432m.
Tim Attlee, chief investment officer at Empiric Student Property says Brexit would be “entirely new territory” – but adds that it would give the UK a “competitive advantage” in attracting the best non-EU students.
“If sterling were to fall following a vote to leave the EU, then the UK should gain competitive advantage against its anglophone competitors, all other things being equal,” a spokesperson says.
James Pullan, head of student property at Knight Frank, adds that funds have long admired the sector’s resilience. “We’ve seen strong investment activity throughout Q1 and Q2, and higher education is not anticipating the flow of international students to be fundamentally shifted [in the event of a Brexit],” he says.
Evidence from a JLL survey backs this view: only nine out of 53 major UK investors named student accommodation as the sector they thought would be most affected by a Brexit – only industrial (seven) and shopping centres (eight) came in lower. Offices ranked highest with 41
Yields declining in London
Yields have also generally remained higher than the IPD average, according to the CBRE report, with the secondary regional market remaining particularly robust at around 7% for the past 18 months.
The exception is central London, where yields have declined since 2014 and are now at an average of 4.5%. proportion of EU students and therefore more rental income at risk.
For example, 10% of students at Glasgow universities are EU nationals, compared with the national average of 6%. This increases to 12% in Edinburgh and 16% in Aberdeen.
London also has above-average levels of international students at 10.2%, and other areas with a high proportion include Colchester (15%), Fife (14%) and central Bedfordshire (40%).
However, Savills’ Hanmer says it is hard to predict the exact impact Brexit would have on these areas.
“London will continue to see a multitude of demographics, both EU and international – but we haven’t identifi ed which cities would be hardest hit. It’s all crystal ball gazing.”
Indispensable part of UK infrastructure
Lower-ranked universities could be the hardest hit, as in-demand institutions will be more able to backfi ll places that would have gone to EU nationals.
So while the detailed impact of Brexit is difficult to predict, the industry is in agreement that the sector will survive leaving the EU.
It is a sentiment summed up well by Walter Boettcher, chief economist at Colliers International
Student accommodation is a “long-term investment” and will remain an “indispensable part of Britain’s basic educational infrastructure”, whatever happens, he says.
“While investors may take a breath and wait to see the EU referendum outcome, over the longer term, student accommodation will prove resilient.”
