Sovereign investors have devoted around US$11 billion to student accommodation from 2015, nearly half of which has come from Singapore’s sovereign wealth fund GIC.

Europe, and in particular the UK, has been the main destination for investors in the university housing market. The UK has a chronic shortage of purpose-built student accommodation, while regulations on this segment are far lighter than other residential segments. Student accommodation offers investors a captive market of renters in high density accommodation and far fewer risks in terms of rent non-payment. Enrollment levels continue to climb, particularly with the return of international students following the ending of global travel restrictions as well as the lower costs of tuition due to the falling value of pound sterling.

This year, sovereign investment in the sector is set to eclipse the previous peak in investment in university housing in 2016 – and the reasons for the latest spike could well be rooted in similar motivations.

This week Singapore’s sovereign wealth fund GIC joined with Dutch pension fund manager APG to take a majority stake in The Student Hotel (TSH), in a deal valuing the European student housing, co-working and hotel group at EUR2.1 billion (US$2.2 billion). APG has invested in TSH since 2015, while GIC joins as a new investor.

TSH proved resilient during the lockdown through a hybrid use of real estate for student accommodation, hotel rooms, co-working and meeting spaces, bars and restaurants.

The TSH deal comes just weeks after GIC and US investor Greystar Real Estate Partners agreed to buy one of the UK’s largest student-accommodation portfolios, Student Roost, from Brookfield. According to Bloomberg, the deal valued Student Roost at approximately GBP3.3 billion (US$4.2 billion). Its portfolio comprises over 23,000 beds, and there are plans to develop about 3,000 more. 

GIC now represents 48% of the total sovereign investment in student accommodation worldwide. Notably, it is the only sovereign wealth fund that is taking the segment seriously, with federal Canadian public pension funds such as CPP Investments, Public Sector Pension (PSP) and British Columbia Investment Management Corporation (BCI) largely dominating state-owned investor capital in student accommodation.

The sovereign wealth fund has returned to the market after three years and the current levels of investment have not been seen since 2016. The decision to make hefty commitments to the sector indicate a more defensive strategy in real estate, reliant on safe returns rather than the prospect of fast growth in property values seen in other real estate segments, particularly single-family and multi-family accommodation.

In their latest student accommodation report, real estate specialists Cushman & Wakefield state that there has been a 14% growth in UK student numbers over the past five years with 1.18 million students studying outside of their home region. It listed Student Roost as the fifth largest owner-operator of student accommodation in the UK.

Global SWF notes one significant similarity between today and 2015/26: market dislocation and volatility in public equity markets, which accompanied lower commercial rents in the real estate market. Student accommodation is seen as a segment that offers relative stability, as demand is unlikely to diminish and income is reliable. At a time when all asset classes are impacted by plummeting asset values and uncertainty, GIC is looking for sectors that offer some sanctuary from the turmoil and resilience in the face of turbulence.

While the volume of deals is still low, GIC’s role as a trend-setter in the SWF world could see other funds follow it in seeking out stability in tumultuous times.

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