Investcorp White Paper: Significant Investment Opportunities in UK Student Accommodation

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Bahrain: Investcorp, a leading global alternative investment firm, today published a white paper outlining significant investment opportunities in the United Kingdom (UK) student accommodation sector. The white paper highlighted that an imbalance in demand and supply is creating an attractive investment opportunity in this asset class, particularly for House in Multiple Occupation (“HMO”) student accommodation, a segment largely overlooked by institutional investors to date.

Key findings in the white paper include:

Increasing demand for student accommodation: Higher education is a large and growing market in the UK. For the 2021/22 academic year, there were 2.2 million full-time university students in the UK, representing a six-year compound annual growth rate of 4.2%. Growth was underpinned by long-term structural trends, including favourable UK demographics and international demand, as well as an increased participation rate amongst the UK population. Approximately 75% of full-time university students in the UK require rental accommodation[1].

Supply-side constraints: Significant supply constraints are limiting the growth of new student housing. In the UK, by far the largest source of student accommodation is HMO, with about 850,000 to 870,000 beds. However, new supply of HMO is constrained in university cities by local authority zoning restrictions. The supply of other sources of student accommodation – Privately-owned Purpose-Built Student Accommodation (“PBSA”), university-owned halls of residence and standard residential one or two-bed flats or houses – cannot fully meet an increasing demand and is restricted by strict planning rules and construction cost inflation.

Opportunities for investors in HMO: The HMO segment remains largely overlooked by investors who have historically invested in PBSA to gain exposure to the student accommodation asset class. HMO is becoming an increasingly attractive segment for investors. HMO is the preferred accommodation for domestic second and third year students and is on average 30% more affordable than PBSA. More professional ownership of HMO can unlock returns and HMO can be acquired below PBSA construction costs.

Neil Hasson, Head of Investcorp European Real Estate, said: “Growing student numbers in the UK, supported by long-term structural trends, are driving demand for student accommodation. At the same time, the supply of new accommodation is constrained by planning restrictions and high construction costs. These market dynamics are creating 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 accommodation, we believe that professional ownership in the HMO segment can drive long-term returns for investors through the cycle.”

Khulood Ebrahim, Real Estate Product Specialist at Investcorp, said: “The UK has remained a highly regarded centre of education and is home to some of the top 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’s real estate sector remains a core part of Investcorp’s investment strategy due to the ability to maintain strong occupancy levels and generate income. Our focus remains on identifying attractive assets with strong fundamentals in this sector and student accommodation is an important part of our market-leading and robust portfolio of high-value real estate assets across strategically located markets in Europe. We expect to see more opportunities throughout the UK market in the future to drive returns for investors.”

Investcorp recently made its first acquisition of a portfolio of UK student HMO accommodations, building on its track record of investing in student housing globally and its deep knowledge of the UK real estate market. The portfolio comprises high-quality assets in three cities that are home to Russell Group universities, the top twenty-four universities in the UK. Alongside the acquisition, Investcorp established a specialist and scalable operating platform to actively manage the assets and grow the portfolio. We believe this platform will help Investcorp to maximise the value of the assets for its investors and create opportunities for further investment, while also enhancing the assets to better meet the needs of students as well as safety and environmental requirements.

About Investcorp

Investcorp is a global investment manager, specializing in alternative investments across private equity, real estate, credit, absolute return strategies, GP stakes, infrastructure and insurance asset management. Since our inception in 1982, we have focused on generating attractive returns for our clients while creating long-term value in our investee companies and for our shareholders as a prudent and responsible investor.

We invest a meaningful portion of our own capital in products we offer to our clients, ensuring that our interests are aligned with our stakeholders, including the communities that we operate within, towards driving sustainable value creation. We take pride in partnering with our clients to deliver tailored solutions for their needs, utilizing a disciplined investment process, employing world-class talent and combining the resources of a global institution with an innovative, entrepreneurial approach. In January 2022, Investcorp issued its 2021 Responsible Business Report which outlines its Environmental, Social, and Governance (ESG) highlights for 2021 and specific initiatives the Firm implemented to meet its goals: https://www.investcorp.com/esg/.

Investcorp has today 13 offices across the US, Europe, GCC and Asia, including India, China and Singapore. As of June 30, 2022, Investcorp Group had US $42.7 billion in total AUM, including assets managed by third party managers, and employed approximately 480 people from 50 nationalities globally across its offices.