The student housing market boomed in 2019. As one of the more advanced residential investment markets, the purpose-built student accommodation (PBSA) market has been on a trajectory of continued growth over the last year. For many years the message from some of Europe’s leading providers and operators of PBSA assets and developments is that this upward trend set to continue.
Yet, for Empiric Student Property (ESP), Xior Student Housing and Unite Students, the focus is not just on meeting this demand. For these companies, their focus is also on ensuring that their business strategy is sustainable and their assets satisfy the growing social and eco-consciousness taking hold of students and investors alike.
For ESP and Unite, both leading UK PBSA providers and operators, the growth of the student accommodation market has been strongly endorsed by the UK Government, as Richard Smith from Unite notes: “The UK Government is targeting a 30% increase in international student numbers.”
And why wouldn’t they? According to Tim Attlee, Founder and CEO at ESP: “The education sector generates approximately GBP 20 billion per year through education exports and transactional activity and with an ambition to grow the total number of international students to 600,000, this Government strategy would generate GBP 35 billion by 2030 – a rise of 75%.”
The story is much the same for Xior, a Belgian born student housing developer and operator who, following the success experienced in Belgium and the Netherlands, ventured south to the growing PBSA Iberian markets of Spain and Portugal. Christian Teunissen at Xior recalls: “At the time of our IPO offering in 2015, 85% of our assets were located in Belgium. Since that time, we have explored the growing number opportunities in the Netherlands. The more immature Iberian markets in Spain and Portugal have a significant student demand, almost double of the Belgium market with 2 million students.”
While the UK is Europe’s largest and most liquid investment market for PBSA development, according to Smith at Unite, there remains significant unmet demand. Attlee at ESP is keen to stress this point when it comes to the UK market: “Supply of PBSA is increasingly constrained by the value of competing lands uses for sites and planning policy, which in many cities is aiming to restrict the development of new schemes.”
However, while a challenge for some, for Xior, this demandhas led to substantial growth – especially within Madrid, where the student population is the same size as the whole of Belgium. As Teunissen says: “We have grown substantially since our IPO offering, from 12 to more than 100 people. But while it is important to grow, we are focused on ensuring our growth is sustainable and allows us to continue to deliver the best in class assets.”
Sustainability is becoming especially important within the real estate industry, and the PBSA market in particular. As one of the more advanced sectors targeting the young population, it is not simply ensuring there are enough PBSA assets for students; in the age of the ‘Greta effect’, sustainability ties inextricably with real estate companies ESG commitments.
“These values have always been essential to our existence. We welcome the fact that investors are focusing on ESG as we continue to integrate these strategies within our wider business planning as well as improving our benchmarking, measurement and reporting,” says Attlee at ESP.
Both ESP and Xior have already begun implementing various initiatives looking to meet their commitments. ESP’s ‘Student Energy Project’, for example, encourages residents to reduce their energy consumption. And Xior is installing solar panels and securing licenses to create concrete using CO2 for use in building energy-efficient ‘green’ buildings. Teunissen notes just how vital these initiatives are: “ESG commitments are becoming increasingly important to encourage the industry to help reduce our carbon footprint during the construction of our assets.”
But the sustainability of the market also rests on the social wellbeing of the students themselves. The ‘S’ in ESG commitments is especially important to the PBSA market, as Smith at Unite explains: “PBSA is fairly unique in serving a customer base of young adults, many of whom are living away from home for the first time. In particular, there is a huge opportunity for our business to engage students to encourage environmentally-friendly habits.”
And Attlee at ESP agrees, with the ‘S’ defining their company purpose: “The happiness, wellbeing and good mental, physical and emotional health of our residents is paramount. We believe students should live in a safe, secure and inspiring environment, and our ‘Hello Student’ social wellbeing operational team is delivering exactly that.”
Having a purpose that enshrines the ‘S’ in ESG is integral for Unite, and their purpose ‘Home for Success’ does just that. “‘Home for Success’ means providing a living environment that allows students to get the very best out of their time at university,” says Smith demonstrating just how central the mental health and wellbeing of their students is to how Unite operates as a responsible business - creating homes that ensure the “smoothest possible” transition to university life.
It has always been the case that PBSA investors, developers and operators have had a closer connection to students than other real estate companies. Investors are beginning to realise how the benefit of investing in ESG initiatives can help to protect returns in the long-term. Attlee at ESP explains: “The days of the third-party manager/operator in the UK are drawing to the close. Investors are realising that the only way to effectively control both the finances and, critically, the customer experience is to become a fully integrated owner-operator.”
And Xior has noticed this as well, as Teunissen says: “We have noticed that investors and banks are increasingly looking at ESG, including social wellbeing. It is our aspiration to become the best in class for students, balancing social wellbeing, sustainability and desirability.”
So, what next for the student housing market? Well, despite Brexit, both Unite and ESP are cautiously optimistic. ESP’s Attlee explains: “Until Brexit negotiations are finalised, it’s hard to say what impact it will have. Demand for higher education in the UK is predicted to rise over the medium term. With this growth being fuelled by increasing numbers of international and postgraduate students, we are inclined to hope that common sense will prevail, and this forward momentum will be preserved.”
Smith at Unite is also confident of the UK’s continued growth in the sector: “The UK will see a significant increase in the 18-year old population over the next ten years at a time when a record share of school leavers are seeking a place at university.”
For Xior, it is truly full steam ahead. With growing demand from south American students travelling to Spain and Portugal, Teunissen certainly has ambition: “We are committed to being the best in class owner and operator, and we are looking to expand our student portfolio to EUR 2 billion by 2022.”
What is certain is that the sustainability and success of the PBSA market increasingly rest on the extent to which student accommodation developers, operators and investors support, protect and nurture the social wellbeing of our future generations.