Student Accommodation as a Global

Asset Class Conal Newland

National Director,

Student Accommodation Services

11 June 2014

Presentation Outline

• What do we mean by institutionally acceptable student accommodation?

• Key investment considerations for student accommodation as a growing asset class

• Summary of recent global student accommodation transactions

• Globalisation of higher education

• Current trends in the supply of accommodation

• Future drivers of demand for accommodation in Australia

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Defining institutionally acceptable student accommodation

• Location – in proximity of more than one educational provider, or virtually on-campus

• Scale – typically 100 plus bedrooms

• Purpose built halls of residence – in the UK significantly more new build than refurbished

• Competent professional management

- Operated by the owner, or outsourced to a third party

- Safety and security of students key consideration

• Relationship with University preferable, but not essential

2

Student Accommodation as an Asset Class

3

Student housing has outperformed other commercial real estate sectors in the US and the UK – the key appealing attributes of the sector are:

Student numbers

continue to

increase – the

sector has proven

to be counter-

cyclical

Strong rental

growth in recent

years

High occupancy

levels relative to

other mainstream

commercial

property

investments

Favorable

demand/supply

imbalance

US HE enrolments during recessions

4

Rent Growth - UK Student Accommodation Market

Source: NUS/Jones Lang LaSalle Research

5

Strong occupancy in the US and the UK

6

7

Global student housing transaction volumes have never

been higher

Student housing private sector transaction levels

UK US

• 2012 GBP 2.7 billion USD 3.9 billion

• 2013 GBP 1.985 billion USD 2.975 billion

• May 2014 GBP 825 million

8

9

6%

7%

8%

9%

10%

11%

12%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

US Real Estate Yields %

Office

Student Housing Multifamily

Industrial

Structural

Compression

2%

4%

6%

8%

10%

12%

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

UK Real Estate Yields %

London City Office

Student Housing

London Prime Houses

London Prime Units

Structural

Compression

• US cap rates now average prime 5.75-6.0%, secondary 7.25-

8.0%)

― Historically traded at 94bps premium to multifamily and

now at 36bps despite strong investment activity in

multifamily sector

• UK yields slightly lower than the US but a narrower spread

to other asset classes than seen in the US

― Reflects bigger supply/demand gap and perceived lower

risk of concentration of assets in major UK cities

Source: Jones Lang LaSalle

Source: Jones Lang LaSalle

Student accommodation yield compression

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2012 Nido and UPP UK transactions The Largest on and off campus deals ever in the sector

Nido Platform Sale

• Round Hill Capital purchased the company including

the three central London assets for circa £415 million

• 2,521 beds across London and plan to grow the

business into a global operating platform

UPP Sale

• The Dutch pension fund, PGGM, completed the

purchase of Barclay’s Capital majority stake in UPP

• 26,000 bedroom portfolio

Investment Landscape – buyers and sellers in USD

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UK Student Accommodation Market – Who’s Investing • UK Institutions

- Looking for FRI Leases or ‘strip income deals’ and are adverse to occupancy risk

- Prudential / AVIVA / Legal & General / LaSalle Investment Management

• Overseas Investors

- Looking for scale and a see London as a stepping stone into mainland Europe

- GIC / Oasis Capital Bank / Blackstone / Carlyle

- American REITS

• University Players

- On campus development

- UPP / ULiving / Campus Living Villages / Balfour Beatty Student Accommodation

• Specialist Funds

- Direct and indirect investment

- Cordea Savills / Beech / AUB / USAF

12

14

Rapid global growth in student numbers worldwide as well as an increase in international student mobility

Globalisation of Higher Education

15

US, UK, Australia, Germany and France account for 49% of international students

The US and the UK are top destinations for students

17

Over one half of international students come from Asia

Asia is the key sourcing region of demand

Summary of student mobility trends

• The number of students enrolled in worldwide Higher Education forecast to double to 262 million by 2025.

• 0.8 million international students in 1975; 3.7 million in 2009 – fourfold increase. Forecast to reach over 7.5 million by 2025.

• Since 1995 the annual global rate of growth in student mobility has been around 4.8%.

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An emerging global market for Higher Education

• An increasing number of mobile, affluent, international students

• Universities marketing on a global basis

• Developer / operators of student accommodation increasingly global in their ambitions

• Increasing global capital movement investment in the sector

19

UK Typical en-suite bedroom

20

Source: Uliving, Willmore Iles – University of Hertfordshire

UK Typical studio

21

Source: Uliving, Willmore Iles – University of Hertfordshire

UK Typical townhouse bedroom

22

Source: Uliving, Willmore Iles – University of Hertfordshire

23

UK Townhouse kitchen and dining room

High density Student Accommodation in Asia

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Current trends in the design of new accommodation

• Accommodation mix to attract returning students • Affordable offerings – incorporating smaller rooms and non en-suite • A range of accommodation types and price points within each property

• Environmental considerations – BREEAM / Green Star

• Twin share accommodation

• Out of term income including conferencing opportunities • High quality communal areas including large shared kitchens

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Europe – Total Enrolments and Total Supply

The statistics below show the percentage of students that reside in purpose built student accommodation in relation to total student numbers:

• UK – 29%

• France – 11%

• Spain – 7%

• Italy – 3%

• Sydney – 8%

• Melbourne – 5%

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Provision of PBSA across continental Europe

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Changes to UK HE funding policy

• Tuition fees could be set from £6,000 - £9,000 from September 2012

- 75% charged full £9,000

- Average £8,600

• Reduced contributions to non-STEM subjects

• Capital contributions halved

• Teaching grants cut

• Cut backs on publicly funded research

• 50% increase in cost to attend University

• Direct government funding replaced by tuition fees and loans payments

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Short term predictions for student accommodation

• Student numbers will fluctuate around the introduction of new fees

• Modest rental growth following implementation of new fee regime

• More students living at home but not a massive step change

• Strong investment focus on top quality opportunities

• Student accommodation will continue to

compete against alternative land uses,

such as residential development

Medium term predictions for PBSA in Australia

• New University funding will settle to the new “norm”

• Strong focus on PBSA development next 2 – 3 years

• Transactions will increase and yields will stabilise

• New operators / investors will enter the market

• Demand for high quality academic facilities to justify tuition fees will extend across to residences

• Increased JV activity from universities

• Partnerships may extend into academic

accommodation too

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Available to download from www.joneslanglasalle.co.uk/studentaccommodation-highereducation

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Conal Newland

National Director

Student Accommodation Services

+61 422 406 611

conal.newland@ap.jll.com

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