The way we were

THE words “Unite Students” are emblazoned on Aston University’s residence halls and on signs all over campus. They are the name of a firm that builds, buys and manages student accommodation across Britain. Last year Unite Students bought all 3,000 of Aston’s on-campus bedrooms for £227m ($313m) in partnership with the Government of Singapore Investment Corporation, a sovereign-wealth fund. It was thought to be the largest ever one-off purchase of student housing.

Many readers will no doubt recall dingy halls of residence owned by universities, or squalid private digs owned by individual landlords. But student accommodation has got an upgrade. Private halls have sprung up as cash-strapped universities have outsourced to companies such as Unite. Some have grown into publicly traded brands offering thousands of beds across the globe. American Campus Communities owns more than 134,000 beds across America. Dubai’s GSA has student housing in eight countries.

Some $16bn poured into the sector globally in 2016. Sovereign-wealth funds invested over 15% of their worldwide spending in student accommodation that year, up from less than 4% in 2011-15, according to the Sovereign Wealth Lab at IE Business School. The Canada Pension Plan Investment Board announced earlier this year that it had acquired a new portfolio of student housing in America for $1.1bn as part of a joint venture. The sector offers strong risk-adjusted returns, limited supply and stable demand, says Peter Ballon, who oversees the fund’s property investments.

Some of this is a punt on the global middle class. As families in developing countries, in particular India and China, have become richer, the appetite for English-language degrees has grown. More than a fifth of university students in Britain are from abroad. America’s foreign-student population grew by 40% over the past five years.

To serve the rich among them, developers now offer hot tubs, rooftop bars, cinema rooms and the like. But most of the action is in more affordable housing close to campus. According to Knight Frank, an estate agent, rising tuition fees in Britain seem counter-intuitively to make students willing to spend more on housing, since it is a smaller share of the total cost. Akshay Bagga is a typical customer. The 19-year-old from Birmingham spent his first year commuting to Aston before deciding he wanted the full university experience. He chose what he thinks is Unite’s cheaper option and is happy with the convenience of living five minutes from the library.

Student accommodation has some specific risks as an investment. Students tend to move only at the beginning of academic years, so failing to find a tenant then may mean a vacancy for a full 12 months. Students are harder on properties than most renters. Students, parents and universities demand prompt repairs and tight security, particularly when the student is living away from home for the first time. And a nativist turn in both America and Britain has led to tighter rules on visas for foreign students, crimping their numbers.

Against that, yields are higher than in other sorts of residential property, according to Savills. In America the average is 5.9% for student accommodation, compared with 5.6% for private residential rentals. And student accommodation has a valuable countercyclical quality. In recessions, people tend to go back to school.