BX Blackstone Inc

By Ruth Bloomfield 

After more than a year of attending classes online, most college students in the U.K. are planning to return to campuses in the fall.

That is good news for global investors who have been making big bets on the U.K. student housing sector even during the pandemic. These investors believe that demand for in-person teaching will stay strong.

They also think that enrollments won't suffer much even if the economy faces tough times for years. "University application rates can sometimes increase in a challenging economic environment," said James Seppala, head of real estate Europe at Blackstone Group Inc. "We also saw this during the global financial crisis," he said.

In one of the largest U.K. student housing deals ever, Blackstone last year paid about GBP5 billion, equivalent to $6.06 billion, for a portfolio of 28,000 beds in student housing in cities including London and Edinburgh. That deal was larger than all the investment in the sector during 2019, as well as 2016 and 2017, according to London-based real-estate services firm Savills PLC.

Earlier this year, Greystar Real Estate Partners LLC announced a GBP291 million deal to buy five buildings with more than 2,000 beds in four university cities. The Charleston, S.C., based company has invested a total of GBP458 million on student beds in the U.K. since 2013.

Institutional investment in private student housing has been slower to evolve in the U.K. than in the U.S. In the past, British freshmen typically were offered on-site accommodation by their universities to help them get used to student life, reducing demand for private housing.

But more recently most colleges, with the notable exception of the universities of Oxford and Cambridge, have sold off or redeveloped former student accommodations.

The number of housing built specifically for students is only 20% to 30% of total enrollment in the U.K., according to John Diedrich, global head of investments of Chicago-based CA Ventures, which teamed up with Harrison Street, also of Chicago, in December to buy four U.K. unfinished student housing developments. In the U.S. student housing near state schools makes up 50% to 60% of enrollment, he said.

The first of the CA-Harrison venture's new buildings will open in September, with private rooms in apartments or studios ranging in price from GBP160 a week to GBP305 a week. Contracts have been signed on about 15% to 20% of rooms so far, Mr. Diedrich said.

The pandemic was tough on student housing but the sector wasn't as badly hit as hotels, malls or other property types. Students studying some subjects that required lab work still had to attend in-person classes.

Others simply wanted to live on campuses to be close to friends. This year occupancy rates at Greystar's London buildings have been running at just over 70%, according to Greystar's senior managing director for Europe, Mark Allnutt. In normal times they would expect occupancy of around 95%.

Even after the pandemic fades, U.K. schools will likely face lower demand from students from the European Union, who will have to pay higher fees post-Brexit. But investors believe rising domestic demand will cover the shortfall and long-term demographic trends will help the sector rebound.

"The global middle class is expanding, especially in China," Mr. Allnutt said. "There is big demand for the world-class educational opportunities which are available in London," he said.

(END) Dow Jones Newswires

March 30, 2021 08:14 ET (12:14 GMT)

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