QIP eyes further expansion in UK student housing to tap on supply-demand imbalance

Singapore has become one of the biggest investors in the UK purpose-built student accommodation (PBSA) market. A 2023 UK PBSA Spotlight report by Savills says that between 2020 and 2022, the country accounted for 24% of overseas investments in the sector — second only to the US, which made up 47%. Since then, institutional funds in Singapore have continued to invest heavily in the sector. In April, Temasek Holdings-backed Mapletree Investments acquired a GBP1 billion ($1.7 billion) portfolio of UK and German student housing assets from Cuscaden Peak Investments, a wholly-owned subsidiary of Cuscaden Peak (a consortium comprising Hotel Properties, Mapletree, and CLA Real Estate Holdings). Mapletree’s acquisition involves 8,192 beds across 19 cities in the UK and Germany, bringing its UK student housing portfolio to over 17,000 beds. In a press release, Mapletree said the deal made it one of the largest owners of student housing in the UK. Read also: QIP and Gamuda Land form GBP100 mil UK student housing joint venture Advertisement Advertisement The same month, Singapore-listed Far East Orchard purchased a 49% stake in Homes for Students (HFS), the largest independent PBSA operator in the UK, for GBP17.6 million ($30 million). HFS manages over 40,000 beds in over 50 university towns and cities in the UK and Ireland. In August, Far East Orchard launched a private fund targeting PBSA development opportunities in the UK. The fund raised GBP70 million in its first closing, with Far East Orchard targeting a total of GBP100 million in aggregate commitments. The transactions indicate that Singapore investors remain bullish on the UK PBSA market. “Every major investor that understands real estate fundamentals, and in particular student housing, understands that now is the time to build the pipeline — whether it is acquiring an operator, portfolio assets, or developing,” says Peter Young, co-CEO of Singapore-based private equity firm Q Investment Partners (QIP). QIP has also continued to expand its investments in the UK PBSA market. In July, the firm entered a GBP100 million joint venture (JV) partnership with Gamuda Land, the property development arm of Malaysia-listed engineering and infrastructure company Gamuda, to develop student housing in the UK. The JV will fund a 299-bed PBSA at 81 to 88 Beresford Street in Woolwich, London. It will be the first PBSA in the multi-billion-pound regeneration of the former Royal Arsenal area in Southeast London. This is the first time QIP has collaborated with Gamuda. The Woolwich project is QIP’s first student housing investment in London and its largest single-asset transaction. It will be the fund’s 11th student housing asset in the UK upon completion. Read also: Q Investment Partners closes US$50 mil multifamily housing fund Advertisement Advertisement

Localised expertise

The Woolwich PBSA asset is co-developed by QIP and Hurlington Capital, a London-based specialist investor and developer. Hurlington Capital acquired the Beresford Street site in 2020 before QIP became an investor in 2023, taking a majority equity stake in the development. QIP’s subsidiary, QIP Development Group (QIPDG), will share development management duties with Hurlington Capital. This is the first time QIP will lead as development manager for a UK project through QIPDG, a UK-registered company. Work on the site started earlier this year, with the project slated to be ready for the 2026/2027 academic year. The project marks a milestone for QIP’s relatively new development management division. QIP’s head of development, James Coppack, joined the firm in mid-2022, building its capabilities in executing and delivering its projects. Earlier this year, QIP added a development manager based in the UK to the team. Young says the expansion is part of QIP’s focus on building a fully vertically integrated business. “In terms of our investment approach, we can consider purchasing land and carrying out specific developments with our local team,” he remarks. This localised expertise has drawn investors looking to enter or expand their exposure to the PBSA sector. For example, Gamuda Land’s partnership with QIP marks the former’s first foray into the UK student housing market. Last year, QIP announced a JV with integrated property group Soilbuild to fund the development of two PBSAs in York and Newcastle for GBP200 million. Both developments are expected to house about 650 beds. Read also: [UPDATE] QIP builds on multi-family housing portfolio in Japan, bets on income stability Advertisement Advertisement

Limited supply supporting strong rental growth

Rents of UK student accommodation have remained robust. “We’ve seen rental growth over the last two or three years north of 8% to 10% across many markets,” Young observes. According to the Morgan Stanley Capital International (MSCI) Student Housing Property Index, UK PBSA rental growth stood at 7% on a rolling 12-month basis as of 2Q2024, far above the 12-month average rental growth of 2.1% over the last 10 years. Knight Frank’s 2Q2024 student housing report puts average rental growth across the UK student housing sector at 7.6% in 2024, while rents in London PBSA grew even higher, at 10.2%. Strong rental growth is due to a continuously growing student population, propelling the demand for housing. Data from the UK’s Universities and Colleges Admissions Service (UCAS) reveals that 425,680 students were accepted onto higher education courses this year, up 3% y-o-y. Student numbers are expected to continue rising. Research by UCAS, in collaboration with Knight Frank and PBSA provider Unite Students, estimates that by 2030, applicants to higher education courses in the UK could reach one million in a single cycle — over 30% higher than the 757,000 applicants in 2023. The study also notes that this growth would result in an additional 400,000 full-time students seeking accommodation. Meanwhile, supply is not growing fast enough to keep pace with demand. According to the Knight Frank report, a maximum of 17,500 new PBSA beds will be completed in the 2024/2025 academic year. This represents a marginal 0.6% increase year over year and remains below the five-year pre-pandemic average of more than 25,000 new beds annually. The report attributes the limited supply to rising construction and site costs, skills and labor shortages, higher financing costs, and complex planning policies. The result is a supply crunch: Young estimates that demand is four students for every available PBSA unit. Given these dynamics, the sector is expected to remain resilient as an investment class. QIP intends to expand its UK PBSA portfolio, focusing on areas with a supply-demand mismatch supported by a strong university or multiple universities. “Over the coming months and into 2025, we are looking at developing new schemes in markets like London, Edinburgh and Glasgow,” Young says. In January, QIP secured a forward funding deal with S Harrison, a York-based property development company, to develop two PBSA schemes in Edinburgh. The two developments on East Newington Place and Canongate will deliver 141 studio rooms. The East Newington Place PBSA is expected to be ready by next year, while the Canongate development is slated to be completed by the start of 2026.

Leveraging investor appetite

In August, the Bank of England cut interest rates from 5.25% to 5%, the first drop in over four years. The US Federal Reserve followed suit in September, reducing rates by half a percentage point to the 4.75% to 5% range. Young views the rate cuts as a positive catalyst for global investors in the student housing market. “With interest rates declining, investors are looking to shift back towards equities, taking on more risk for higher relative returns, rather than remaining passive,” he observes. Already, global investments in the UK PBSA market are picking up momentum. According to the Knight Frank report, investment in the market topped GBP1.7 billion in the second quarter of 2024, the strongest quarter for investment since 2022. QIP is seeking to tap into the larger investment appetite. The firm could launch a core plus fund targeting UK student housing in the next 12 months.

Other growth plans

Outside of the UK, QIP is also focusing on building up its portfolio in the US. It currently has one US project — a multifamily development in Chicago — that will be completed in the winter of 2025. Last year, QIP also completed a last-mile logistics warehouse facility in Utica, New York. This marked QIP’s first entry into the logistics space, albeit in a development management role. The project was a collaboration with New York-based real estate investment firm Routine Properties. The firm is not “immediately investing” in the US logistics industry, though Young remains open to the idea. “We think that the last mile logistic sector is very attractive, and if there’s sufficient scale, that’s something we would look at,” he says. Instead, QIP remains primarily focused on the residential living sector in the US, including multifamily, co-living and student accommodation, which Young expects to receive a positive boost from the rate cuts. One potential investment route QIP is considering in the US is co-investing with local developers who need capital assistance. “We’re seeing young developers that may not have a significant track record and need execution capability and capital to finish a project effectively. We could come in and invest in a co-sponsor or co-general partner capacity,” Young elaborates. QIP’s third investment market is in Japan, where it currently has four multifamily assets, the latest of which was acquired in June of last year. The acquisition of the 42-unit property in central Tokyo was funded by a joint venture between QIP and Alyssa Partners, an investment management firm focused on the Japanese market. In June 2022, the JV acquired three assets in Osaka and Nagoya at a combined value of US$40 million ($52.6 million). The three multifamily assets have a total of 207 units. For now, QIP doesn’t have immediate plans for further expansion in Japan, with Young noting that the market “continues to be hot”. “In a hot market, where the focus is on offering the highest price, that can sometimes be challenging,” he adds.