STUDENT
MARKET REVIEW
2016
CONSOLIDATION KEY
THEME FOR 2016
INSTITUTIONS DOMINATING
INVESTMENT LANDSCAPE
RETURNS OUTPERFORMING
TRADITIONAL SECTORS
INSTITUTIONS TOP OF
THE CLASS
In 2015 the Purpose Built Student Accommodation
(PBSA) investment market had a record year with
£5.1bn of transactions. Of the 49,271 student bedrooms
transacted over 46% were acquired by Institutions.
T
EA
517ST
2
SOUTH EAST
NO
RTH
WE
ST
5,253
6,5
24
,402
ST
WE
24
6,5
,402
ON 10
LOND
H
RT
NO
on 41 assets a high proportion of which
were located within London. Interestingly,
the share of the investment market taken
by private equity has fallen every year since
2013. We anticipate the shift from Private
Equity to Institutional/Publically listed
vehicles will continue in 2016.
T DS
EASIDLAN
M 463
3,
S
1,9 OU
38 TH
EASinvested over £2.13bn in 2015
Private Equity
T5
,25
3
WEST
MIDLANDS
3,767
LONDON 10
TH
ND
ES
SOU
S
3,9COT
88 LA
W
WALES
4,0
H
UT
SO EST 5
W ,73
1
62 ASSETS
Jan to Dec 2015
A further sign of the markets maturity is the
7 REITS such as Empiric
evolution of sector
,06
T4
StudentHProperty
and GCP Student Living.
EAS
RT
NO publically listed entities have driven
These
over £0.53bn of investment in 2015 and their
& HUMBER 4,522
YORKSpresence
investment
looks set to increase
in 2016.
ND
TLA
SCO68
6
1,
INSTITUTIONAL
Student beds transacted by region
23
£5.1bn
Y
HU ORK
MB S &
ER
4,5
2
Head of Student Property
LES
WA023
4,
NORTH EAST
4,067
JAMES PULLAN
spent on 172 assets
throughout 2015.
The Knight Frank Dashboard reveals that
in 2015 PBSA total returns outperformed
the traditional property sectors. This was a
product of strong rental growth combined
with a positive yield shift. We project that
in 2016 rental growth will be more muted
than in the previous year and that growth in
capital values is unlikely driven by yield shift.
The biggest single Institutional investor
was CPPIB who acquired both the Liberty
Living platform and the Student Castle
portfolio. Other key institutional investors in
2015 included Henderson Global Investors,
Aviva, BlackRock, LaSalle Investment
Management and M & G with a combined
£1.92bn of investment. This wave of
Institutional investment has now polarised
the market such that assets that fail to
meet Institutional specification have much
reduced liquidity.
PRIVATE
PUBLIC
PRIVATE
EQUITY
47 ASSETS
41 ASSETS
TOP FINANCIAL SPENDERS
£1,44bn
TOP FINANCIAL SPENDERS
£330m
TOP FINANCIAL SPENDERS
£1.25bn
CPPIB
Empiric Student Property
Partners of Greystar RE
£150m
£270m
£670m
Apache Capital
£120m
LaSalle IM
Unite
£200m
GCP Student Livng
LetterOne
£70m
Knightsbridge Student Housing
1
2
3
Source: RCA, PBSA Investment in 2015
2
Please refer to the important notice at the end of this report
STUDENT MARKET REVIEW 2016
DASHBOARD
Total returns Jan to Dec 2015
STUDENT
STUDENT
STUDENT
Capital returns Jan to Dec 2015
RETAIL
RETAIL
(IPD)
(IPD)
OFFICE
(IPD)
(IPD)
INDUSTRIAL
(IPD)
(IPD)
RETAIL
(IPD) OFFICE
OFFICE
(IPD)INDUSTRIAL
INDUSTRIAL
(IPD)
21.5%
21.5%
21.5%
9.5%
9.5%
9.5%
20.5%
20.5%
20.5%
STUDENT
STUDENT
STUDENT
RETAIL
RETAIL
(IPD)
(IPD)
OFFICE
(IPD)
(IPD)
INDUSTRIAL
(IPD)
(IPD)
RETAIL
(IPD) OFFICE
OFFICE
(IPD)INDUSTRIAL
INDUSTRIAL
(IPD)
15.3%
15.3%
15.3%
19.7%
19.7%
19.7%
Income returns Jan to Dec 2015
3.3%
3.3%
3.3%
14.9%
14.9%
14.9%
STUDENT
STUDENT
STUDENT
RETAIL
RETAIL
(IPD)
(IPD)
OFFICE
(IPD)
(IPD)
INDUSTRIAL
(IPD)
(IPD)
RETAIL
(IPD) OFFICE
OFFICE
(IPD)INDUSTRIAL
INDUSTRIAL
(IPD)
6.1%
6.1%
6.1%
12.7%
12.7%
12.7%
4.9%
4.9%
4.9%
6.0%
6.0%
6.0%
6.3%
6.3%
6.3%
Source: Knight Frank Student Property
Estimated Yield curve May 2009 to Dec 2015
Estimated FM costs per bed May 2009 to Dec 2015
£2,500
8.0%
7.0%
LONDON
REGIONS
£2,000
6.0%
£1,500
5.0%
LONDON
Dec-15
Sep-15
Jan-15
May-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
£1,000
May-09
Dec 15
Sep 15
Jan-15
May-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
May-09
REGIONS
4.0%
UK student assets transactions Jan to Dec 2015
8.0%
7.0%
2013
LONDON
REGIONS
2014
£2,500
OTHER
Feb
Mar
Apr
May
Investor
Spend
Jun
2015
£550m
Jul
Aug
Sep
INSTITUTIONAL
Oct
Nov
Dec
£1.52bn
£460m
INSTITUTIONAL
Feb
Mar
Apr
£1,500
Jan
£1.37bn
£930m
£670m
PRIVATE EQUITY
£2m
PRIVATE EQUITY
£210m
PUBLIC
PUBLIC
Beds
Transacted
OTHER
OTHER
£2,000
5.0%
4.0%
Jan
£240m
£22m
£40m
6.0%
2015
LONDON
REGIONS
22,793
BEDS
0% PUBLIC
2% OTHER
63% PRIVATE EQUITY
35% INSTITUTIONAL
Source: RCA, IPD, Knight Frank Student Property
17,766
BEDS
2% OTHER
28% PUBLIC
31% INSTITUTIONAL
39% PRIVATE EQUITY
£1.92bn
May
Jun
2015
Jul
Aug
Sep
Oct
INSTITUTIONAL
Nov
Dec
£5.1bn
£2.13bn
PRIVATE EQUITY
£810m
PUBLIC
49,271
BEDS
6% OTHER
15% PUBLIC
33% PRIVATE EQUITY
46% INSTITUTIONAL
3
2015 HEADLINE
RENTAL GROWTH
2.9%
3.65%
Overall UK headline
rental growth
EDINBURGH
7.1%
GLASGOW
2.3%
NEWCASTLE
4.8%
2.5%
DURHAM
MANCHESTER
2.4%
LEEDS
3.0%
4.3%
BIRMINGHAM
LIVERPOOL
6.5%
1.8%
4.5%
SHEFFIELD
COVENTRY
BRISTOL
8.1%
SOUTHAMPTON
4
3.8%
LONDON
STUDENT MARKET REVIEW 2016
WHERE IS THE GROWTH?
In 2015 Student Accommodation showed rock solid
occupational demand supply credentials. Rental growth
averaged at 3.65% as student numbers grew and supply
struggled to meet demand.
Whilst the macro picture (3.65%)
is relatively steady, each market
demonstrates different credentials largely
depending upon the current level of
structural under supply together with the
development pipeline and its delivery in
any specific year. London (3.8%) and
Manchester (4.8%) are good examples
of cities with large student populations
and very modest delivery pipelines. Both
these cities showed strong rental growth
in 2015 and we would expect that they
would continue to show rental growth
consistent with the national trend (3.65%)
in 2016.
Bristol (1.8%) and Newcastle (2.3%)
both saw relatively high volumes of stock
being delivered into the market and
accordingly the rental growth in 2015 was
somewhat muted relative to the national
trend. The universities in both these cities
are showing good student population
growth and we project that rental growth
in 2016 will approach national trends as
the markets stabilise.
NEIL ARMSTRONG
Partner, Student Property Valuations
Glasgow (7.1%) and Liverpool (4.3%)
appear to demonstrate above trend rental
growth in 2015. However, we perceive
that these market are more complex than
the headline levels would suggest and
that the significant delivery pipelines in
these cities during 2016 will reduce rental
growth to well below national trend in the
forthcoming letting cycle.
2015 Headline rental growth
Jan to Dec 2015
7.1%
6.2%
4.5%
4.9%
2.9%
1.8%
4.5%
2.4%
2.5%
1.0%
1.6%
-1.0%
0.1%
RETAIL
STUDENT
OFFICE INDUSTRIAL
BRISTOL
2.8%
2.5%
0.6% 0.8%
0.2%
0.0%
STUDENT RETAIL OFFICE INDUSTRIAL
STUDENT RETAIL OFFICE INDUSTRIAL
EDINBURGH
GLASGOW
STUDENT RETAIL OFFICE INDUSTRIAL
LEEDS
STUDENT RETAIL OFFICE INDUSTRIAL
LIVERPOOL
11.9%
5.7%
4.8%
4.3%
4.9%
4.7%
4.2%
8.1%
4.5%
5.5%
3.0%
6.4%
2.7%
5.0%
4.0%
1.3%
0.5%
0.7%
2.6%
OFFICE
RETAIL
STUDENT RETAIL OFFICE INDUSTRIAL
MANCHESTER
STUDENT
-0.5%
OFFICE INDUSTRIAL
BIRMINGHAM
STUDENT RETAIL OFFICE INDUSTRIAL
SHEFFIELD
STUDENT RETAIL
-0.3%
Flats
INDUSTRIAL
SOUTHAMPTON
1.6%
Studios
STUDENT
Flats
Studios
Flats
Studios
Flats
Studios
RETAIL OFFICE INDUSTRIAL
LONDON
SOURCE FOR STUDENT DATA: KNIGHT FRANK STUDENT TEAM
SOURCE FOR ALL OTHER DATA: IPD UK QUARTERLY KEY CENTRES: Q3 2015, Q3 2016, Q3 2017
5
NEW SCHEMES IN 2016
The 2016 delivery pipeline is at its highest recorded level
but we observe that with student numbers growing and
the tendency to use PBSA increasing, the new stock
is not making significant inroads into the structural
undersupply of the sector. In this section we review how
the delivery pipeline will change the balance of demand
and supply.
PERCENTAGE
OF FULL TIME
STUDENTS UNABLE
TO ACCESS PBSA
The PBSA delivery pipeline in the UK
has been fuelled by the availability of
regional planning consents and rising
capital values in the sector. Whilst
construction costs have also risen
significantly in the past few months,
many of the schemes being delivered
in September 2016 predate the most
recent construction cost increases.
The delivery pipeline in Glasgow has
been significant in 2015 and a further
858 student bedrooms are projected
for 2016. Whilst we do anticipate
further indigestion for this market as
new schemes settle into position, we
observe that at a macro level the
market remains structurally under
supplied. Many of the new schemes
that have been delivered have provided
studio accommodation of a high
specification and we anticipate that
further development will focus on
cluster flat led schemes.
PBSA SUPPLY DYNAMIC
The rise in value of alternative uses
(such as residential or offices) will
make identifying PBSA development
sites increasingly difficult in the regions.
As construction costs reach a new high
for PBSA and indigestion causes some
rental turbulence we project that the
pace of new development will slow in
many markets which have seen greatest
development recently.
In Liverpool we anticipate 1,241 new
student bedrooms to be delivered in
2016. After allowing for the expected
increase of student numbers, the
percentage of full time students in
Liverpool unable to access PBSA will
move from its current position of 51%
to 49% in 2016. We project that in this
market rental growth will be muted in
2016 and that “indigestion” may result.
Equally we also foresee any letting
turbulence during September 2016 will
quickly subside as the volume of new
stock is digested by the market.
London appears to show the largest
pipeline in the UK of both university and
private sector stock. However, London
has the biggest shortfall of PBSA relative
to student numbers. London student
population is growing year on year and
despite a single year’s delivery of over
5,000 student bedrooms we project that
the structural undersupply will move by
only 1% from 71% to 70% of students
unable to access PBSA.
In raw percentage terms, Glasgow
appears to be the most structurally
under supplied market in the UK.
6
“London has the
biggest shortfall
of PBSA.”
(assuming full delivery of
development pipeline)
Current vs September 2016
(estimated)
CURRENTSEP
2016
GLASGOW 79% 78%
LONDON 71% 70%
BRISTOL 66% 66%
BIRMINGHAM 67% 65%
MANCHESTER 64%
64%
SOUTHAMPTON 68%
64%
CARDIFF 66%
63%
ABERDEEN 66%
62%
NEWCASTLE UPON TYNE
65%
62%
EXETER 62%
60%
LEEDS 62%
60%
SHEFFIELD
63%
60%
EDINBURGH 64%
59%
NOTTINGHAM
60%
59%
DURHAM 60%
58%
LEICESTER 56%
53%
LIVERPOOL 51%
49%
COVENTRY
49%
47%
STUDENT MARKET REVIEW 2016
UNIVERSITY
PRIVATE SECTOR
DELIVERY OF PBSA BEDS
September 2016
1,888
858
1,394
718
494
EDINBURGH
GLASGOW
ABERDEEN
1,453
307
1,241
NEWCASTLE
DURHAM
1,332
228
0
MANCHESTER
LIVERPOOL
1,104
LEEDS
1,178
1,128
939
SHEFFIELD
BIRMINGHAM
LEICESTER
376
311
COVENTRY
NOTTINGHAM
1,311
5,082
CARDIFF
1,590
362
71
EXETER
BRISTOL
1,382
420
3,492
962
LONDON
SOUTHAMPTON
7
GLOBAL BRIEFING
For the latest news, views and analysis
on the world of prime property, visit
KnightFrankblog.com/global-briefing
OUR PREDICTIONS FOR 2016
STUDENT PROPERTY
1
1
Institutions dominate 2016
James Pullan MRICS
Head of Student Property
+44 20 7861 5422
[email protected]
Institutions dominate 2016
STUDENT PROPERTY AGENCY
Capital PBSA investment returns
outperform traditional sectors
3
Rachel Pengilley MRICS
Partner
+44 7825364789
[email protected]
2
Capital PBSA investment return
outperform traditional sectors
3
Development focus in regions
Merelina Monk MRICS
Partner
+44 77 8557 7237
[email protected]
Development focus in regions
STUDENT PROPERTY
VALUATION
Neil Armstrong MRICS
Partner
+44 20 7861 5332
[email protected]
4
London development pipeline
will fall dramatically
London development pipeline
will fall dramatically
STUDENT PROPERTY SINGAPORE
5
5
Continued global investment demand
Emily Fell
Associate Director, Capital Markets
+65 98 384 712
[email protected]
Continued global investment de
ARA NEWMARK STUDENT HOUSING
Growth of REITS and publically
listed vehicles
7
6
Growth of REITS and publically
listed vehicles
Ryan Lang
Executive Managing Director
512 637 1296
[email protected]
7
Consolidation will be a key theme
Front Cover: Paul Street East is a premium 458 bed student accommodation scheme,
completed in August 2015. The scheme was developed by way of a Joint Venture
between Apache Capital Partners and McLaren Property and was acquired in full by
investors represented by Apache in October 2015. For more information, please visit
http://www.apachecapital.co.uk
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Important Notice
© Knight Frank LLP 2016 – This report is
published for general information only and
not to be relied upon in any way. Although
high standards have been used in the
preparation of the information, analysis, views
and projections presented in this report, no
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accepted by Knight Frank LLP for any loss or
damage resultant from any use of, reliance on
or reference to the contents of this document.
As a general report, this material does not
necessarily represent the view of Knight Frank
LLP in relation to particular properties or
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or in part is not allowed without prior written
approval of Knight Frank LLP to the form
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