As the first of these ‘owner-operators’, Unite has built its brand by acquiring assets and running them close to capacity, ensuring the students keep coming back to stay. It is an excellent manager of student accommodation blocks, but also benefits from consistently high levels of occupancy that is 60% underpinned by using nomination agreements – where a university commits to a block of accommodation solely to be used by its students. Nomination agreements secure income over a set time, usually several years, and present strong barriers to entry for other players in the student letting space, strengthening the long-term business case for Unite’s accommodation.
GCP Student, while not an operator itself, partners with Scape – an operator of high-quality purpose-built student accommodation largely focused in London and the south. By being involved in the operation of the accommodation, the larger players such as GCP Student benefit from being able to utilise a trusted brand, known for offering safe, high-quality and purpose-built housing.
Importantly, the direction of travel for government policy is strongly supportive. The International Education Strategy seeks to increase the number of international students studying in the UK by more than 30% by 20302. Boris Johnson, the Prime Minister, has also announced plans to allow international students to remain living in the UK for two years after graduation in order to secure work, making the UK a far more attractive prospect for overseas students wanting to begin careers here.
Major events such as Brexit should not, we believe, have a major impact. Demand from students from outside the European Union remains strong, while the popularity and quality of UK universities will remain a draw for students. For example, international students housed in GCP Student properties are predominantly from countries outside the European Union (69%), attracted by the high-quality and student-centric developments. In 2018 only 13% came from EU countries3.
Investment into the purpose-built student accommodation offers an exciting, vibrant addition to a portfolio as well as key diversification benefits through exposure to assets largely unaffected by the vagaries of economic market cycles. With a strong pipeline of interest from international students, and increasing government support, we believe it is a sector that is set for strong future growth – with the best, highest-quality opportunities likely to be found in the areas where demand continues to outstrip the available supply.
Author: Matthew Norris CFA, Head of Real Estate Securities, Gravis
1 Knight Frank Research
3 GCP Student September 2019 Factsheet