The benefits of investing in and developing student housing abroad are much like the benefits of traveling or even studying abroad. It can open your eyes to other cultures, show you a different way of life and change your perspective on the “right” way of doing things.
“Our international footprint enables us to share best practices from around the world to innovate our developments,” says James Hunt, global head of real estate for GSA International.
But first, you have to understand the various global student housing markets to capitalize on what works, and what doesn’t.
The Major Markets
Europe
The United Kingdom (U.K.) is a well-established student housing market that has its own set of dynamics when compared to the rest of Europe. But it has struggled recently, as Josh Miller, head of European transactions at Harrison Street, points out.
He notes that fewer than 15,000 student beds were delivered ahead of the 2023-2024 academic year. This is 28 percent below the previous academic year and significantly below the pre-pandemic, five-year average of nearly 24,000 beds.
“Next year’s delivery total is anticipated to fall even further, and planning activity looks likely to compound supply side issues into the medium term,” Miller says. “In the first eight months of 2023, applications totaling 27,000 beds have been put forward, whilst fewer than 13,000 have been granted planning permission.”
This is compared to 2018 when developers applied to build 37,000 beds and when 33,000 were greenlit. Despite this, Miller believes the U.K. offers opportunities to developers.
“The U.K. continues to be attractive,” he says. “Even though the U.K. is more mature than continental European markets, it benefits from being a liquid market for transactions, has a higher concentration of top-quality universities than any other country in the world, offers instruction in English — which is viewed favorably by many international students — and has a favorable visa program for graduates that want to remain in the U.K.”
Miller further notes rental growth is strong in European markets like the U.K. (6 percent), Ireland (7 percent) and Spain (5 percent).
“These figures are markedly outperforming other sectors in these countries but are also among the highest performers for student housing across Europe as a whole,” he adds.
These countries are standouts, Hunt says, because the industry is still getting off the ground in many parts of Europe.
“In mainland Europe, the student housing sector remains in its infancy,” he explains. “So activity is still limited as progressing development projects is naturally more challenging.”
Miller adds that markets like France and Germany have significant levels of unmet demand, with pipelines that contain fewer than 20,000 and 9,000 purpose-built student housing beds, respectively.
Canada
Henry Morton, president of Ontario-based Campus Suites, notes that his country is in sore need of more housing, but providing it can be a challenge for developers.
“There are a number of opportunities throughout the country as every school is screaming for housing help,” he says. “That being said, the number of realistic opportunities are not plentiful.”
Morton attributes this to the country’s heavy emphasis on established partnerships.
“In Canada, I think one of the biggest challenges is developing relationships,” he adds. “Counterparties want to know that they can trust you, that you will be around for the long term, and that there is someone you know answering the phone. This makes it harder for entrants to drop in quickly and make significant headway.”
Opportunities exist, according to Morton, in Ontario and Alberta. But other areas face challenges. These include Halifax, which is “surrounded with non-code compliant housing” that limits development; Winnipeg, which has a glut of new housing; and Montreal, which has “restrictive governmental policies” that make developing student housing more challenging.
Asia and Australia
Hunt sees Australia as a country poised to take off in terms of student housing development, due mostly to its restrictions during the pandemic.
“Australia has seen a significant post-COVID recovery,” he says. “With occupancy and rental growth at unprecedented levels, the market is predominantly composed of international students. The country shutting its borders during COVID created pent-up demand. This operational bounce back is, in turn, driving an uptick in development activity.”
Hunt also likes Australia — in addition to the U.S., Europe and Asia-Pacific (APAC) — due to its fundamentals.
“These markets are home to some of the world’s leading educational institutions, are politically and economically stable, have strong supply demand dynamics and display positive longer-term demographics trends,” he notes. “Tokyo alone has 1 million students annually, while markets like Melbourne in Australia remain particularly attractive.”
Taking Lessons Here, There
As Hunt argued in the beginning, the knowledge and perspective gleaned from being exposed to and intimately involved with international markets can help developers create viable projects and translate to the U.S. market. GSA recently converted a 1970s office block into a 684-bed student housing development called St. Crispin’s House, which is just five minutes from Norwich University of the Arts in England.
“We are now looking at how we can take the lessons learned at St. Crispin’s House and capitalize on potential office-to-student conversion opportunities in the U.S. where malaise in the office sector is creating opportunities for change of use,” he says.
The same inspiration occurred at GSA’s Hakusan House community, which serves the University of Tokyo and Waseda University in Tokyo.
“At our Hakusan House community in Tokyo, six people share a ‘nest’ unit of 390 square feet,” Hunt says. “We never assume everything works everywhere but there are many opportunities to put our learnings to use. For example, we think micro units could work in a New York City office conversion.”
Conversely, Miller has taken his experience developing stateside and used it to enter new international student housing markets.
“Applying lessons we have learned from our successes in the U.S., Harrison Street made its first international PBSA (purpose-built student accommodation) investment in 2015 — a 400-bed development on Mill Street in Dublin,” he says.
The project, which was a joint venture with GSA, was built to accommodate students of Trinity College Dublin and the Royal College of Surgeons. The schools had about 17,000 and 3,800 students, respectively, at the time, Miller notes. Harrison Street sold its stake in the asset back to GSA as part of a five-development portfolio of Ireland-based PBSAs in 2020.
Similarities, Differences
As with cultures, the global student housing markets share many similarities.
“We are attracted to student housing in international markets for many of the same reasons we’ve pursued the asset class in the U.S. — significant and embedded supply demand imbalances and the defensive nature of the sector, as exhibited by strong performance in both expansionary and recessionary economic environments,” Miller says.
Morton adds that some international markets, including Canada, also share similar challenges, particularly in the current economic environment.
“While interest rates and cap rates may both be lower than those of the U.S., the premise and the delta would seem to be consistent,” he says. “Development is spotty in that land availability is still one of the biggest impediments. Now that interest rate increases seem to have leveled off, there may be a small return to development, but institutions still seem to be waiting for the first person to go, notwithstanding that costs are increasing, yet so are rents.”
Hunt notes that as far as differences go, many of them boil down to rules regarding development.
“For example, in the U.K. and most other European countries, there are national building regulations, so you have consistency in development standards from one city to the other,” he says. “In contrast, in the U.S., code regulations vary between states, so there isn’t a set national standard for all assets to adhere to. The differences are instead seen at a state, city or asset level. This is where the nuances associated with securing entitlements, build costs — and, therefore, viability — and pricing assets in today’s markets become apparent.”
Then there’s the issue of taxes.
“The tax code is very challenging for those who want to do business from outside the country,” Morton adds. “If you are not domiciled here, it can be quite complicated and/or punitive. There are also lots of acronyms that are new to people that have to be overcome — HST (harmonized sales tax), PST (provincial sales tax), LTT (land transfer tax), ITC (input tax credits), CCDC (Canadian Construction Documents Committee), AOA (Ontario Association of Architects) and so on.”
And let’s not forget about location differences.
“The U.S.-style ‘college town’ dynamic is not as prevalent in Europe,” Miller explains. “A significant portion of European universities and associated student housing is located in cities or urban locations. This dynamic creates barriers to entry for student housing development and makes it more difficult to develop student housing in Europe relative to the U.S.”
These difficulties occur because urban land sites are harder to find and acquire; obtaining planning permission in European urban locations is complicated and takes more time than in the U.S.; and there is greater competition from other alternative property uses, he contends.
Despite locale differences, Miller states that amenities in European student housing properties tend to be similar to those in the U.S., including gyms, theater rooms and group study rooms. Their urban settings, however, prevent most from offering outdoor amenity space — something that’s become commonplace in many stateside communities.
Evaluating the viability of a student housing development or acquisition is more similar than different as well.
“We assess everything on a yield basis,” Morton says. “We look at the cost of development and our potential net operating income to determine our development yield. We layer in our internal rate of return expectations to try to think holistically.”
Morton notes he also makes it a practice to know the construction costs, rental rates and expenses combined with the growth or inflationary expectations for a market.
“I don’t think we do anything differently than anyone else, but we just try to dig deeper,” he says. “As a family business, we don’t totally worry about the shorter-term little noise if the long-term is what makes the most sense for us. This gives a different perspective than the funds or institutions that have more shorter-term timing considerations.”
Hunt adds GSA assesses the viability of any investment or development across three levels to achieve a comprehensive underwrite.
“At a macro level, we look at the taxation, legal and regulatory considerations within that country,” he says. “At a city level, we analyze the strength of universities, enrollment trends, accommodation options, pricing and quality. Finally, at a micro level, we review the attributes of specific locations and sites.”
Here, again, there are similarities to the U.S. market — at least in terms of viability. Though every market may have its own set of challenges and advantages, the purpose of providing housing to those who want to further their education remains the same. And that’s always a good investment.
—Nellie Day
This article was originally published in the November/December 2023 issue of Student Housing Business magazine.