The student accommodation sector is important to Mapletree as an investment class, with the group aiming to grow its global student housing assets under management (AUM) to $11 billion, says Matt Walker, CEO of student housing at Mapletree. Walker was speaking at Mapletree’s fourth real estate forum at the Singapore Management University (SMU).
As at June 2024, the group, which is one of the largest investors of student accommodation globally and in Asia, has an AUM of $5.9 billion. Mapletree has over 33,000 beds across 47 cities in the UK, US, Canada and Germany. The group has a significant presence in the UK and Europe with a heavier weightage of assets – about 65% - in the UK compared to 20% in the US. Mapletree is the fifth largest student accommodation provider in the UK while it is in 16th place in the US by bed count.
Student housing is an “attractive and resilient” asset class that offers investors stable returns, says Wendy Koh, group chief financial officer (CFO) at Mapletree Investments. Koh, who was also at the forum, is the chairman of the advisory board of the SMU real estate programme.
Student housing is protected from macroeconomic trends with fairly stable income, adds Walker. For instance, when the economy is poor, students tend to remain at universities for longer periods, potentially also when job prospects are lower, he explains. “Generally, you see enrollments at least stay stable during a period like that, if not increase.”
With no direct correlation between this asset class and during times of shocks in the global economy, student accommodation tends to provide a “natural hedge” against other asset classes and investments, Walker adds.
The only notable decline, however, was during the Covid-19 pandemic when international and domestic borders were shut and students – especially international students – couldn’t return to their campuses. However, as soon as they were able, students returned and at a faster rate, said Walker at the forum. Even then, rents during the pandemic years barely declined and was followed by “strong and consistent” rent growth after.
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Student accommodations have evolved to become more comfortable lodgings, unlike the halls of residence of yesteryear. Today, they come in all shapes and sizes – from high-rise apartments to traditional campus-style settings. Some of these lodgings include wifi, built-in amenities, security and even resort-style pools and ski simulators for some. The asset class spans the range of entry-level first-generation housing to something comparable to some of the best hotels in cities, says Walker.
Growing global appetite
There is also a growing appetite seen among global institutional investors for student accommodation, with a “huge amount of growth” to go across the globe to capture any additional need for the asset class.
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Aside from the US and the UK, the market is a generally immature one with a lot of construction and development of new beds as potential.
As such, Mapletree sees this as something that it can scale into, says Walker. Spain, for instance, is a target for the group as it has a healthy student to bed ratio and developing such properties isn’t as difficult compared to other markets. Australia is another market that remains on the group’s list as the impact of a potential limit imposed on international students would not be “massive” in Walker’s opinion. “We’ll have to see. Time will tell but we continue to be optimistic.”
That said, he points out that there are a few barriers to entry including requiring specialist knowledge and expertise to ensure that investors are putting their money into the right places, at the right assets and at the right time.
“I can’t emphasise how operationally challenging it is,” says Walker on running student accommodation properties. He adds that a similar comparison is hospitality properties where there is heavy emphasis on day-to-day care and attention at the front desk. It also goes far beyond that due to the nature of the tenants, which are usually around the school-going ages of between 18 to 23 years. Staff in student accommodation properties also have to take on parental and guidance counsellor roles, especially for students who have mostly never lived outside of their parents’ homes.
Evaluating the student to bed ratio goes deeper than looking into individual markets. Investors will also have to try and understand the factors that influence whether the asset at a particular university is going to be successful over the long term, Walker explains.
Investment opportunities
According to Savills, the living sector, which student accommodation is a part of, is worth some US$2.6 trillion ($3.5 trillion) to US$3 trillion, which is roughly the market capitalisation of Amazon, notes Joy Wang, head of Asean equity research and Asean property at HSBC.
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She adds that student accommodation being a “fair niche sector” gives “generally pretty good” returns.
“We have actually seen better NOI (net operating income) yield versus sort of similar asset classes in the living space,” she says. “And given what we've talked about in terms of risk, the risk reward is pretty good on the student accommodation.”
Student accommodation also provides good risk diversification thanks to its steady stream of students in good times and bad. She points out that this is useful particularly when real estate assets are cyclical, and having an asset that is counter cyclical is “always” helpful for investors.
The asset class, which allows operators to adjust their rates pegged to inflation, is also a plus, in Wang’s view, especially during a high-inflation environment. Operators, unlike real estates with tenure of between three to five, or even up to 10 years, are able to adjust their fees on an annual or per-term basis and are thus able to quickly capture operating costs.
Finally, Wang points out that continued growth in demand for this particular asset, as well as its barriers to entry, are upsides for investors looking to diversify into this sector.
With this in mind, the analyst says she continues to see resilience in REITs with student accommodation properties such as CapitaLand Ascott Trust HMN (CLAS). Of their 101 properties, nine of them are student accommodation assets.
With Mapletree looking to grow its portfolio, as well as Singapore Exchange S68 (SGX)-listed stocks such as CapitaLand Investment (CLI) and City Developments Limited C09 (CDL) having a percentage of student accommodation properties within their portfolio, there are opportunities for public investors as well, Wang notes.
