Investors from the United States have been the primary source of cross-border capital, spending $7.5bn on PBSA over the past five years. However, the balance of power is shifting, according to Knight Frank.
The outflow of capital from Asia-Pacific has eclipsed that from both Europe and North America in two of the previous three years. In fact, investment from Asia Pacific into student property markets around the world has risen by 47% in the last five years, RCA data shows. In 2017 alone this equated to $3.5bn.
This figure was more muted in 2018 reflecting the fact that levels of cross-border investment were down globally, amid a slowdown in economic growth around the world and a more cautious investor appetite in the second half of last year. Notably, however, Asian investors were underbidders on a series of significant student property transactions in 2018.
Given the economic performance within Asia Pacific in recent years, its emergence as a more influential player within the market is no surprise, but this shift in capital flows will play a significant role in shaping future PBSA markets. Far from retreating from the market as Asian influence has risen, European and North American investors have also steadily increased the share of capital invested overseas into PBSA – albeit to a lesser extent.
Who is investing?
Cross-border deals emanating from institutional investors have made-up the bulk of activity over the last three years, accounting for 75% of the total volume of capital deployed in this time, according to Knight Frank. However, there has also been a notable increase in activity among private equity funds, a trend which is expected to continue. According to financial data provider Prequin, $124 billion of fresh capital was raised in 2017 alone and many of the North American funds behind the largest of these pools have a global or European remit.
James Pullan, Global Head of Student Property at Knight Frank, explains:
“The US and the UK remain the two most mature global PBSA markets when measured by investment volumes, accounting for 56% and 31% of total global investment in 2018 respectively.
“While this is likely to continue to be the case, other markets are starting to catch up. Investment into European student housing from overseas has totaled $2.3bn over the last three years, a significant increase on historic volumes, though still some way behind the $8.4bn and $6.3bn invested in the US and UK respectively. Given current strong returns in European markets, as well as the variety of investors currently looking to deploy capital, this trend is set to continue as the sector matures.
“Asia’s role is also growing rapidly, not just as a source of outbound capital, but as a destination for inward investment. The emergence of Chinese institutions within world university ranking tables is indicative of this, a trend we explore later in the report. European investment into student property markets in Asia-Pacific doubled in 2018.”
In the longer term, the share of investment into Asia Pacific markets is predicted to increase further, according to Knight Frank. Australian higher education, in particular, continues to attract a larger share of the world’s internationally mobile students. However, in the short-term, so strong is the focus from both Asia Pacific and North American investors on European PBSA that that the continent is expected to be the primary focus for investment.”