student market review - knight frank · 2018-11-05 · 2 please refer to the important notice at...
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STUDENT MARKET REVIEW2016
CONSOLIDATION KEY THEME FOR 2016
INSTITUTIONS DOMINATING INVESTMENT LANDSCAPE
RETURNS OUTPERFORMING TRADITIONAL SECTORS
2 Please refer to the important notice at the end of this report
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.
JAMES PULLAN Head of Student Property
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.
A further sign of the markets maturity is the evolution of sector REITS such as Empiric Student Property and GCP Student Living. These publically listed entities have driven over £0.53bn of investment in 2015 and their investment presence looks set to increase in 2016.
Private Equity invested over £2.13bn in 2015 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.
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.
INSTITUTIONS TOP OF THE CLASS
Student beds transacted by region Jan to Dec 2015
£5.1bnspent on 172 assets
throughout 2015.
PRIVATE
LONDON 10,402
NORTH WEST 6,524
SOUTH EAST 5,253
YORKS & HUMBER 4,522
NORTH EAST 4,067
WAL
ES 4
,023
SOUTH
WEST
1,735
SCOTLAND
1,668 LONDON 10,402
NORTH WEST 6,524
SOUTH EAST 5,253
YORK
S &
HUMBE
R 4,5
22
NORT
H EA
ST
4,06
7
WAL
ES
4,02
3
SCOTLAND
3,988
WEST MIDLANDS 3,767
EAST
MIDLANDS
3,463
SOUTH
WES
T
1,938
EAST
51
7
£1,44bnCPPIB
£330mEmpiric Student Property
£1.25bnPartners of Greystar RE
Source: RCA, PBSA Investment in 2015
INSTITUTIONAL62 ASSETS
PRIVATE EQUITY41 ASSETS
PUBLIC47 ASSETS
TOP FINANCIAL SPENDERS TOP FINANCIAL SPENDERS TOP FINANCIAL SPENDERS
£150mApache Capital
£120mLaSalle IM
£270mUnite
£200mGCP Student Livng
£670mLetterOne
£70mKnightsbridge Student Housing
123
STUDENT MARKET REVIEW 2016
3
DASHBOARD
Source: RCA, IPD, Knight Frank Student Property
Source: Knight Frank Student Property
19.7%INDUSTRIAL (IPD)
20.5%OFFICE (IPD)
9.5%RETAIL (IPD)
21.5%STUDENT
12.7%INDUSTRIAL (IPD)
14.9%OFFICE (IPD)
3.3%RETAIL (IPD)
15.3%STUDENT
6.3%INDUSTRIAL (IPD)
4.9%OFFICE (IPD)
6.0%RETAIL (IPD)
6.1%STUDENT
19.7%INDUSTRIAL (IPD)
20.5%OFFICE (IPD)
9.5%RETAIL (IPD)
21.5%STUDENT
12.7%INDUSTRIAL (IPD)
14.9%OFFICE (IPD)
3.3%RETAIL (IPD)
15.3%STUDENT
6.3%INDUSTRIAL (IPD)
4.9%OFFICE (IPD)
6.0%RETAIL (IPD)
6.1%STUDENT
19.7%INDUSTRIAL (IPD)
20.5%OFFICE (IPD)
9.5%RETAIL (IPD)
21.5%STUDENT
12.7%INDUSTRIAL (IPD)
14.9%OFFICE (IPD)
3.3%RETAIL (IPD)
15.3%STUDENT
6.3%INDUSTRIAL (IPD)
4.9%OFFICE (IPD)
6.0%RETAIL (IPD)
6.1%STUDENT
UK student assets transactions Jan to Dec 2015
Investor Spend
Beds Transacted
Total returns Jan to Dec 2015 Capital returns Jan to Dec 2015 Income returns Jan to Dec 2015
4.0%
5.0%
6.0%
7.0%
8.0%
REGIONS
LONDON
REGIONS
LONDON
4.0%
5.0%
6.0%
7.0%
8.0%
Jan Feb Mar Apr May Jun2015
Jul Aug Sep Oct Nov Dec
Sep
15
Dec
15
May
-15
Jan-
15
Sep
-14
May
-14
Jan-
14
Sep
-13
May
-13
Jan-
13
Sep
-12
May
-12
Jan-
12
Sep
-11
May
-11
Jan-
11
Sep
-10
May
-10
Jan-
10
Sep
-09
May
-09 £1,000
£1,500
£2,000
£2,500
REGIONSLONDON
REGIONSLONDON
£1,500
£2,000
£2,500
Dec
-15
Sep
-15
Jan-
15
May
-15
Sep
-14
May
-14
Jan-
14
Sep
-13
May
-13
Jan-
13
Sep
-12
May
-12
Jan-
12
Sep
-11
May
-11
Jan-
11
Sep
-10
May
-10
Jan-
10
Sep
-09
May
-09
Jan Feb Mar Apr May Jun2015
Jul Aug Sep Oct Nov Dec
Estimated FM costs per bed May 2009 to Dec 2015Estimated Yield curve May 2009 to Dec 2015
22,793BEDS
17,766BEDS
49,271BEDS
2013 2014 2015
6%15%33%
46%
OTHER
PUBLIC
PRIVATE EQUITY
INSTITUTIONAL
2%28%31%
39%
OTHER
PUBLIC
INSTITUTIONAL
PRIVATE EQUITY
0%2%63%
35%
PUBLIC
OTHER
PRIVATE EQUITY
INSTITUTIONAL
£1.52bn
PRIVATE EQUITY£930m
PRIVATE EQUITY£670m
PRIVATE EQUITY£2.13bn
INSTITUTIONAL£550m
INSTITUTIONAL£460m
INSTITUTIONAL£1.92bn
PUBLIC£2m PUBLIC
£210mPUBLIC£810m
OTHER£40m OTHER
£22m OTHER£240m
£1.37bn £5.1bn
4
LEEDS
MANCHESTER
NEWCASTLE
EDINBURGH2.9%
4.8%
4.3%
2.5%
2.4%
6.5%
1.8%
8.1% 3.8%
GLASGOW7.1% 2.3%
SHEFFIELD4.5%
LIVERPOOL
COVENTRY
SOUTHAMPTONLONDON
BRISTOL
3.0%BIRMINGHAM
DURHAM
2015 HEADLINE RENTAL GROWTH
3.65%Overall UK headline
rental growth
5
BRISTOL EDINBURGH GLASGOW LEEDS LIVERPOOL
MANCHESTER SHEFFIELDBIRMINGHAM SOUTHAMPTON
1.3%
4.8%
2.8%2.5%
4.3%4.9%
7.1%
0.1% 0.2%
2.4%
4.5%
0.6%1.0%
0.0%-1.0%
1.8%
6.2%
4.7% 4.5%
8.1%5.7%
0.5% 0.7%2.6%
Studios StudiosFlatsFlats
StudiosFlats
StudiosFlats
-0.3%
5.5%
2.7%
INDUSTRIALOFFICERETAILSTUDENT
INDUSTRIALOFFICERETAILSTUDENT
INDUSTRIALOFFICERETAILSTUDENTINDUSTRIALOFFICE
RETAIL
STUDENT INDUSTRIALOFFICERETAILSTUDENT INDUSTRIALOFFICERETAILSTUDENT
INDUSTRIALOFFICERETAILSTUDENT INDUSTRIAL
OFFICE
RETAILSTUDENT
LONDON
11.9%
6.4%
5.0%4.0%
1.6%
INDUSTRIALOFFICERETAILSTUDENT
SOURCE FOR STUDENT DATA: KNIGHT FRANK STUDENT TEAMSOURCE FOR ALL OTHER DATA: IPD UK QUARTERLY KEY CENTRES: Q3 2015, Q3 2016, Q3 2017
3.0%
-0.5%
4.2%
4.9%
INDUSTRIALOFFICE
RETAIL
STUDENT
2.9%
1.6%
2.5%
4.5%
0.8%
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.
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.
NEIL ARMSTRONG Partner, Student Property Valuations
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.
2015 Headline rental growth Jan to Dec 2015
STUDENT MARKET REVIEW 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 65% 62% UPON TYNE
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%
CURRENT SEP 2016
6
PERCENTAGE OF FULL TIME STUDENTS UNABLE TO ACCESS PBSA(assuming full delivery of development pipeline)
PBSA SUPPLY DYNAMICCurrent vs September 2016 (estimated)
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.
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.
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.
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.
NEW SCHEMES IN 2016The 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.
“ London has the biggest shortfall of PBSA.”
7
UNIVERSITYPRIVATE SECTOR
1,382
SOUTHAMPTON
SHEFFIELD
1,178
NEWCASTLE
1,453
311
NOTTINGHAM
MANCHESTER
LONDON
1,241
0
LIVERPOOL
1,332
5,082
3,492
1,590
LEEDS
GLASGOW
858
362
EXETER
EDINBURGH
DURHAM
307
BIRMINGHAM
1,128
COVENTRY
376
LEICESTER
939
CARDIFF
1,311
BRISTOL
71
718
ABERDEEN
1,888
494
1,394
1,104
228
962
420
DELIVERY OF PBSA BEDS September 2016
STUDENT MARKET REVIEW 2016
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 responsibility or liability whatsoever can be 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 projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.
For the latest news, views and analysison the world of prime property, visit
KnightFrankblog.com/global-briefing
GLOBAL BRIEFING
STUDENT PROPERTY
James Pullan MRICS Head of Student Property +44 20 7861 5422 [email protected]
STUDENT PROPERTY AGENCY
Rachel Pengilley MRICS Partner +44 7825364789 [email protected]
Merelina Monk MRICS Partner +44 77 8557 7237 [email protected]
STUDENT PROPERTY VALUATION
Neil Armstrong MRICS Partner +44 20 7861 5332 [email protected]
STUDENT PROPERTY SINGAPORE
Emily Fell Associate Director, Capital Markets +65 98 384 712 [email protected]
ARA NEWMARK STUDENT HOUSING
Ryan Lang Executive Managing Director 512 637 1296 [email protected]
OUR PREDICTIONS FOR 2016
7
6
5
4
3
2Capital PBSA investment returnsoutperform traditional sectors
Development focus in regions
London development pipelinewill fall dramatically
Continued global investment demand
Growth of REITS and publicallylisted vehicles
Consolidation will be a key theme
1 Institutions dominate 2016
7
6
5
4
3
2Capital PBSA investment returnsoutperform traditional sectors
Development focus in regions
London development pipelinewill fall dramatically
Continued global investment demand
Growth of REITS and publicallylisted vehicles
Consolidation will be a key theme
1 Institutions dominate 2016
RECENT MARKET-LEADING RESEARCH PUBLICATIONS
Knight Frank Research Reports are available at KnightFrank.com/Research
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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