The UK is a global leader in the provision of higher education, with some of the highest-ranking universities in the world. Four UK universities were ranked among the world’s top 10 in 2019, second only to the United States in terms of concentration of top universities. The exceptional nature and popularity of UK universities has resulted in a boom in demand for purpose-built student accommodation. It is a real estate sub-sector which has become a fast-growing and vibrant part of the fabric of UK investible property in recent years, with two REITs playing an important part.
The purpose-built sub-sector was effectively created by Unite Group 28 years ago. Before Unite, students largely relied on converted houses or flats to live in during their time studying. In the years since, Unite has grown into the largest REIT in this specialist area with a portfolio of 75,000 throughout the UK and assets valued at more than £7 billion. Purpose-built student accommodation is valued at c.£50 billion in the UK today1 and as domestic and international student numbers increase, with huge growth in applications from countries such as China, so too does demand for suitable accommodation to house them.
Ultimately, continued and rising need for accommodation to house the c.1.8 million students in full-time higher education in the UK means demand often outstrips the supply of beds in crowded university cities, particularly in London, Bristol and Brighton. There is an increasing divergence of investment returns between those cities with an undersupply of student housing resulting from restrictive planning and/or limited land availability, and those with less restrictive planning regulations. Severe undersupply in London and the South East means that it remains substantially behind the UK average in terms of the number of beds per student. The combined region is home to over one-quarter of all students in the UK – with one third of international students choosing to study there – leading to the demand for rooms outstripping supply by a considerable margin.
The newly launched VT Gravis UK Listed Property Fund (GULP), seeks to invest in REITs with exposure to this robust and growing sector, benefitting from the supply/demand imbalance, with buildings located in the key areas where student accommodation is most needed.
The extent of undersupply is likely to be compounded by the slowing pace of the delivery of new student accommodation developments and is one of the reasons that London is the primary focus of funds such as GCP Student Living – The UK’s first dedicated student accommodation REIT to trade on the London Stock Exchange. The company is now a member of the FTSE 250 with a market cap in excess of £700 million.
Focused, expert exposure to student accommodation such as that offered by GCP Student or its larger peer Unite, which aims to take advantage of these severe supply and demand imbalances, can offer dependable, growing dividends and capital appreciation for investment portfolios. Student accommodation is also an area less affected by the ups and downs of the economic cycle than most other property sectors.
Seeking out the companies that both own and operate these purpose-built student blocks is an important consideration for the VT Gravis UK Listed Property Fund. Some companies and funds only own the assets, with little – if any – active involvement in the running and management of the buildings and its tenants. We believe the best opportunities lie with the owners and operators that improve the experience for students, managing everything from rental contracts and cleaning to security and pastoral care.