According to our latest research, investment into student accommodation across Europe increased by 250 per cent between 2018 and 2019. Given the current Covid-19 pandemic, the question now is how resilient is the sector in the short and long term?

Here are three reasons why the purpose-built student accommodation (PBSA) sector still looks like a good choice for investors going forward.

Attractive defensive asset class

The PBSA sector was one of the few asset classes to show resilience during the 2008 financial crisis and provided investors with robust returns given its counter-cyclical nature.

For many investors, in particular those who are heavily weighted in traditional asset classes such as offices, PBSA is seen as an attractive alternative asset class. This shift has been more pronounced in recent years where investors have been seeking diversification and a rebalancing of portfolios given the sector offer ‘through the cycle fundamentals'. While a number of international students have returned home, it is anticipated that this segment will return once government restrictions have been lifted and the situation normalises.

Continued favourable underlining fundamentals

The number of international students globally is expected to rise from the current 5,000,000 to 8,000,000 in 2025 and a predicted €25 billion of institutional money remains available to invest in the sector in Europe alone.

The international student population has grown by 65 per cent in the last decade which fuelled demand for increased provision of high-quality PBSA. Europe remains fundamentally undersupplied and many cities struggle to accommodate both domestic and international demand.

The current situation is likely to prompt more students to consider studying closer to home. However, this is predicted to be a short-term response. As witnessed in 2008, during a period of uncertainty, student numbers often increase as many chose to upskill or delay entering an increasingly competitive labour market. Those universities that are currently at the top of the international rankings, including many in the UK such as London, Oxford or Cambridge, and parts of Europe, may well see competition for places – and accommodation.

Cyclical academic year

The PBSA sector is very much driven by the academic calendar, and with most universities starting in September, operators, traditionally, start securing tenants in the run-up to the start of the term. While some developments may be currently on hold as builders and contractors are unable to get on site, this cyclical process may create some pressure. However, with uncertainty around actual academic start/end dates and increase online course, this is seen as a short-term impact while markets normalise.  

The UK and Europe will remain one of the world's most popular student hotspots and demand from overseas for high-quality education is expected to rise once travel restrictions have been lifted. Students from China and India in particular are expected to fuel this trend.

The sector’s resilience is demonstrated by the number and scale of recent transactions and large portfolios currently on the market which are continuing to draw strong investor interest. This also underlines the fact that many investors are of the view that Covid-19 won’t have a sustained effect on the UK or European student accommodation sector.

Given its attraction as a defensive asset class and the favourable underlying fundamentals, we expect transaction volumes will increase over the second half of 2020.

Further information

Listen to the podcast: What's driving investment in Europe's student housing?

Read more: Savills Covid-19 Resource Hub