The emergence of student accommodation as an institutionalised property sector
| Pages | 523-538 |
| DOI | https://doi.org/10.1108/JPIF-01-2018-0007 |
| Published date | 06 September 2018 |
| Date | 06 September 2018 |
| Author | Graeme Newell,Muhammad Jufri Marzuki |
| Subject Matter | Real estate & property,Property valuation & finance,Property management & built environment |
The emergence of student
accommodation as an
institutionalised property sector
Graeme Newell and Muhammad Jufri Marzuki
School of Business, University of Western Sydney, Penrith South, Australia
Abstract
Purpose –Amongst the alternative property sectors, student accommodation has recently become an
important institutionalised property sector for pension funds and sovereign wealth funds in the global
property landscape, particularly in the UK. The purpose of this paper is to assess the significance,
risk-adjusted performance and portfolio diversification benefits of student accommodation in a UK property
and mixed-asset portfolio over 2011–2017. Drivers and risk factors for the ongoing development of the
student accommodation sector are also identified. The question of student accommodation being a proxy for
residential property exposure by institutional investors is also assessed.
Design/methodology/approach –Using annual total returns, the risk-adjusted performance and portfolio
diversification benefits of UK student accommodation over 2011–2017 is assessed. Asset allocation diagrams
are used to assess the role of student accommodation in a UK property portfolio and in a UK mixed-asset
portfolio for a range of property investor types.
Findings –UK student accommodation delivered superior risk-adjusted returns compared to UK property,
stocks and REITs over 2011–2017, with portfolio diversification benefits. Importantly, this sees UK student
accommodation as strongly contributing to the UK property and mixed-asset portfolios across the entire
portfolio risk spectrum and validating the property industryperspective of student accommodation being low
risk and providing diversification benefits. Student accommodation is also not seen to be a proxy for
residential exposure by institutional investors.
Practical implications –Student accommodation is an alternative property sector that has become
increasingly institutionalised in recent years. The results highlight the important role of student
accommodation in a UK property portfolio and in a UK mixed-asset portfolio. The strong risk-adjusted
performance of UK student accommodation compared to UK property, stocks and REITs over this timeframe
sees UK student accommodation contributing to the mixed-asset portfolio across the entire portfolio risk
spectrum. This is particularly important, as many investors (e.g. pension funds, sovereign wealth funds) now
see student accommodation as an important property sector in their overall portfolio.
Originality/value –This paper is the first published empirical research analysis of the risk-adjusted
performance of UK student accommodation, and the role of student accommodation in a UK property
portfolio and in a UK mixed-asset portfolio. This research enables empirically validated, more informed and
practical property investment decision making regarding the strategic role of student accommodation as an
alternative property sector in a portfolio.
Keywords Institutional investors, Risk-adjusted returns, Asset allocation, UK property sector,
Institutionalized property sector
Paper type Research paper
Introduction
Recent years have seen the alternative property sectors take on increased importance with
institutional investors such as pension funds and sovereign wealth funds. This includes the
alternative property sectors of healthcare, self-storage, data centres, childcare centres,
education facilities, farmland, timberland and university student accommodation. This has
seen the institutionalising of several of these alternative property sectors in many countries.
In particular, student accommodation, which is an essential element of university
infrastructure, has taken on increased institutional investor interest at a global level; both in
terms of university student accommodation and purpose-built student accommodation
(PBSA). This has been in the full international context, including the USA, UK and
Australia, as well as Europe (e.g. Germany, the Netherlands, Spain, France, Austria) and
Asia (e.g. Japan, China, India). Driven by strong university student dynamics, particularly
Journal of Property Investment &
Finance
Vol. 36 No. 6, 2018
pp. 523-538
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-01-2018-0007
Received 31 January 2018
Revised 4 June 2018
Accepted 5 June 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
523
Student
accommodation
increasing levels of international students, this has seen several leading pension funds and
sovereign wealth funds actively involved in investing in student accommodation globally.
This includes GIC, CPPIB, APG, Bouwinvest, PGGM and Temasek, often investing in
student accommodation across several countries. This has seen many property fund
managers actively involved in the student accommodation space, in both listed and
non-listed vehicle structures. This includes Principal, Mapletree, Aberdeen and Hines, as
well as US and UK student accommodation REITs being established. As such, it is
important to assess the significance and performance of student accommodation in a
property portfolio and in a fuller mixed-asset portfolio.
Limited research has been done on university student accommodation. Ong et al. (2013)
considered student accommodation from a property perspective, assessing the importance
of demand factors for student accommodation in a US university context. McIntosh et al.
(2017) also considered student accommodation as a non-traditional property type (along
with self-storage, healthcare, senior housing and medical office), using the US NCREIF
direct property data along with six traditional property sectors (multifamily, office, mall,
shopping centres, industrial and hotel) for a US property portfolio over 2005–2015, with the
focus being on the fuller alternative property sectors contribution rather than student
accommodation specifically. Other research regarding student accommodation have largely
been concerned with student satisfaction issues (e.g. Arambewela and Hall, 2009; Gruber
et al., 2010; Hubbard, 2009; Kurth and Mellard, 2006; Thomsen and Eikemo, 2010). Industry
reports have also assessed student accommodation in an alternative property sector
context (Investment Property Forum (IPF), 2015a), as well as student accommodation in a
residential investment context (IPF, 2015b). Student accommodation reports are also
produced by the leading property advisory groups (e.g. JLL, CBRE, Colliers, Knight Frank,
Savills, Cushman & Wakefield, EY, KPMG), at a UK, European and global level. From a UK
student accommodation perspective, this includes CBRE (2016, 2017), Cushman and
Wakefield (2017), EY (2016), JLL (2017a, b), Knight Frank (2016), KPMG (2017) and Savills
(2016), as well as student accommodation reports at a European/global level (CBRE, 2015;
JLL, 2017a, b, c; Knight Frank, 2017; Savills, 2017a, b).
No rigorous empirical analysis regarding the risk-adjusted performance and the role of
UK student accommodation in a mixed-asset portfolio has yet been published, this empirical
analysis of UK student accommodation being the focus of this paper.
As such, the purpose of thispaper is to assess the significance, risk-adjusted performance
and portfolio diversification benefits of student accommodation in a property portfolioand in
a mixed-asset portfolio in the UK over September 2011–September 2017. Drivers and risk
factors for the ongoing strategic development of the student accommodation sector are also
highlighted.This sees two specific research questionsconcerning UK student accommodation
as the empirical focus of this research:
RQ1. How has the student accommodation sector performed on a risk-adjusted basis in a
UK property portfolio and mixed-asset portfolio?
RQ2. Is studentaccommodation a proxyfor residential exposureby institutionalinvestors?
These research questions RQ1 and RQ2 enable considerable insights into the role of student
accommodation in a property and mixed-asset portfolio, and the fuller understanding of the
ongoing strategic implications for pension funds and sovereign wealth funds as the student
accommodation sector becomes increasingly institutionalised at a UK and global level.
In examining these two research questions, it is also important to consider student
accommodation and the other asset classes in the fuller asset allocation decision-making
context. Asset allocation is a key strategic consideration for institutional investors in
allocating their funds effectively across the various asset classes. The more significant
allocations to shares and bonds reflect positive liquidity issues for these assets, while REITs
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