Significant supply constraints limit the growth of new student accommodation. In the UK, by far the largest source of student accommodation is HMOs, with around 850,000 to 870,000 beds. However, the new HMO offering is limited in college towns by local authority zoning restrictions. The supply of other sources of student accommodation – Privately Built Student Accommodation (“PBSA”), halls of residence and standard one- and two-bed residential apartments or houses – cannot fully meet growing demand and is limited by strict town planning rules and the inflation of construction costs.
The HMO segment remains largely overlooked by investors who have historically invested in PBSA to gain exposure to the student housing asset class. HMO is becoming an increasingly attractive segment for investors. HMO is the preferred accommodation for second and third year domestic students and is on average 30% more affordable than PBSA. More professional HMO ownership can unlock returns and HMOs can be acquired below PBSA construction costs.
Neil Hasson, Head of Investcorp European Real Estate, said: “The growing number of students in the UK, supported by long-term structural trends, is driving demand for student accommodation. At the same time, the supply of new housing is constrained by planning restrictions and high construction costs. This market dynamic creates very attractive investment opportunities in this asset class, which also benefits from strong defensive qualities and inflation protection. While institutional investors have traditionally focused on new purpose-built housing, we believe that professional ownership in the HMO segment can generate long-term returns for investors throughout the cycle.
Khulood Ebrahim, Property Products Specialist at Investcorp, said: “The UK has remained a highly valued center of education and is home to some of the best universities in the world. Driven by this demand, the student accommodation sector represents an incredibly lucrative investment opportunity with a proven track record of strength and resilience in times of wider economic uncertainty. The UK property sector remains central to Investcorp’s investment strategy due to its ability to maintain high occupancy levels and generate income. Our aim remains to identify attractive assets with strong fundamentals in this sector and student accommodation forms an important part of our strong and market-leading portfolio of high-value property assets in strategically located markets across Europe. We expect to see more opportunities in the UK market going forward to generate returns for investors.
Investcorp recently made its first acquisition of a portfolio of HMO student accommodation in the UK, building on its track record of investing in student accommodation globally and its in-depth knowledge of the UK property market. The portfolio includes high-quality assets in three cities that are home to Russell Group Universities, the top twenty-four universities in the UK. Along with the acquisition, Investcorp established a specialized and scalable operating platform to actively manage the assets and grow the portfolio. We believe this platform will help Investcorp maximize asset value for its investors and create additional investment opportunities, while enhancing assets to better meet student needs as well as safety and environmental requirements.