Attractive, stable and compelling
Despite being considered an alternative investment, PBSA is cementing itself as a mature real estate asset class, with the potential to generate significant income and be resilient even in periods of economic downturn. As reported by CBRE's 2020 Student Accommodation Index, PBSA was the best performing asset class in the year to September 2020. Looking forward, Savills's five-year forecast released in January 2021 had PBSA as the third best performing sector.
These strong returns are also associated with lower volatility, meaning the sector has produced risk-adjusted returns roughly three times as high as the mainstream market. Like all sectors, PBSA has been affected by the COVID -19 pandemic with capital values falling 0.4% in the year to September 2020, its only fall in the past decade. However, PBSA saw one of the smallest decline in capital values when compared with other sectors and still saw rental growth of 1.6% in the year to September 2020, the fifth consecutive year of outperformance against the mainstream market. Only Industrial saw higher rental growth in 2020 (at 2.0%) while both Office and Retail saw rental values fall (2.2% and 8.1% respectively).
CBRE's 2020 Index also highlighted an increasingly clear polarisation in the PBSA market with London and Super Prime Regional assets outperforming Prime Regional and Secondary assets. In the year to September 2020, assets in London and Super Prime Regional locations experienced positive capital growth, while assets in Secondary markets saw capital values fall 9.9%. This is also mirrored with rental growth where in the same period, Super Prime markets saw a 2.8% rise in net rental growth and Prime Regional saw a 1.7% rental growth, whereas Secondary markets saw net rents fall 2.3%. The Empiric portfolio is well aligned to the high-growth locations with 86% by value classified as either London, Super Prime Regional or Prime Regional.
Positive Student Demographics
In UCAS's End of Cycle Report 2020, positive demand statistics for the 2020 admissions cycle were reported. The data indicates that 728,780 students applied to higher education ("HE") providers in the UK in 2020, up by 22,345 students (+3.2%) on 2019. Applications from non-EU domiciled students rose 12.2% to 98,660, significantly offsetting the small fall in applications from EU domiciled students.
Overall student acceptances reflected stronger growth with 29,235 extra students (+5.4%) which included EU students increasing by 1.7% and non-EU domiciled students by 7,615 (+16.9%), highlighting the continued appeal of HE providers in the UK for overseas students, despite short-term restrictions on international mobility. Notably, UCAS report 24% and 35% year on year increases in applicants from China and India respectively with also significant demand from the USA.
The UK's International Education Strategy continues to secure the country's position in the global HE sector and support graduates with a generous post-study work visa system.