Fashionable Students

Islamic investor interest in student accommodation would appear to peak every two to three years; while our own 90 North’s first acquisition was in the student sector in 2012 and we were far from alone that year, I last wrote about Islamic investor activity in mid-2014 and find myself again putting fingers to the keyboard on the subject. Students are back in fashion at the moment.

One of the announcements that led me to this conclusion was that of Bahrain based Tadhamon Capital launching a new student accommodation joint venture with Future Generation in the UK. A development play, with plans for Sheffield, Colchester and co-incidentally my home town of Guildford, this is yet more evidence, if more was needed, that Islamic investor interest remains across the UK and not just the central zones of London.

This is the latest phase of Tadhamon’s focus on social infrastructure, having previously invested in education, home care, social housing and indeed student accommodation in the past.

Focusing on what is driving such investor interest are the student demand side observations that while the overall number of full-time students has been growing relatively modestly to around 1.7 million currently, two important factors have changed.

Firstly, Cushman & Wakefield reports that the number of students from outside the UK and continental Europe has grown by 69% over the last 10 years, now representing an amazing one in five students in the UK. Such global students are more likely to desire and remain in quality student accommodation.

Meanwhile, with the previous capping of student numbers at each university removed for the 2015/16 academic year, the most oversubscribed universities are now implementing expansion plans, leading to both more students overall and a further propensity for domestic students to travel outside of their home region.

Meanwhile, as I’ve highlighted before, I firmly believe that it’s the international studies of Islamic investors and their advisors in the first place that provides familiarity with this real estate sector, with former students able to reflect on both good and bad experiences in their previous student accommodation. Certainly, there are many with a soft spot for their previous university town…Bristol for me!

I’m delighted that student accommodation is back in vogue again, but as ever, would encourage caution on the selection of individual opportunities.

With the exception of long leases to universities which are becoming increasingly scarce and expensive, these are operational assets where rental growth, while nationally strong at 3.5% per annum for privately held assets last year, is achieved or lost at an individual property level each year.

If you get it right, there is strong capital appreciation to be achieved, but more than many other sectors, wise selection is critical.

Original article appeared in Islamic Finance News.