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Student
The emergence of student accommodation
accommodation as an
institutionalised property sector
Graeme Newell and Muhammad Jufri Marzuki 523
School of Business, University of Western Sydney, Penrith South, Australia
Received 31 January 2018
Revised 4 June 2018
Accepted 5 June 2018
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 industry perspective 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
Journal of Property Investment &
terms of university student accommodation and purpose-built student accommodation Finance
(PBSA). This has been in the full international context, including the USA, UK and Vol. 36 No. 6, 2018
pp. 523-538
Australia, as well as Europe (e.g. Germany, the Netherlands, Spain, France, Austria) and © Emerald Publishing Limited
1463-578X
Asia (e.g. Japan, China, India). Driven by strong university student dynamics, particularly DOI 10.1108/JPIF-01-2018-0007
JPIF increasing levels of international students, this has seen several leading pension funds and
36,6 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
524 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 this paper is to assess the significance, risk-adjusted performance
and portfolio diversification benefits of student accommodation in a property portfolio and 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 questions concerning 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 student accommodation a proxy for residential exposure by institutional investors?
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
also enjoy the liquidity features of the stock market. However, direct property is somewhat Student
constrained by its typical lack of liquidity. This sees direct property typically accounting for accommodation
5–10 per cent of the overall portfolio for institutional investors, with Pagliari (2017)
recommending less than 15 per cent. The focus of these institutional property portfolios
has previously been office, retail and industrial property, seeing some institutional investors
having multi-billion dollar property portfolios in these property sectors. This includes
pension funds (e.g. APG ($48bn), CPPIB ($34bn), CalPERS ($31bn), PGGM ($28bn)), 525
sovereign wealth funds (e.g. ADIA ($62bn), QIA ($35bn), GIC ($25bn), Temasek ($24bn), CIC
($22bn)) and insurance companies (e.g. Allianz ($42bn), AXA ($40bn), Swiss Life ($29bn),
Generali ($26bn)) (IP and E Real Assets, 2018).
As an alternative property sector, student accommodation has become increasingly
popular and enjoys a role in many investor portfolios, particularly favoured around the
issues of being low risk, providing portfolio diversification benefits and providing strong
income returns. However, as an alternative property sector, it needs to be constrained in the
fuller asset allocation and in the fuller property allocation context. This is suitably captured
in the analysis in this paper via a constrained asset allocation analysis to account for two
scenarios: involving smaller investors and the larger institutional investors. This has
significant implications for the expected levels of student accommodation in a portfolio.

Significance of student accommodation

Context
Student accommodation is an essential element of universities, both from a university
infrastructure perspective and student social/amenities perspective. Traditionally, student
accommodation has been provided on-campus or near campus by the universities, often
using a professional student accommodation provider.
Operationally, this has seen universities have their student accommodation on their balance
sheets, locking up important funds that could be otherwise used for the universities’ primary
functions of teaching and research. Today, the operating model for student accommodation has
changed, with investors more actively involved; this includes pension funds and sovereign
wealth funds, as well as highly developed professional operators on the operational side of this
student accommodation. This has seen the university student accommodation landscape
change considerably in recent years, both in terms of players and investors, and the increased
focus on PBSA. This has also seen the institutionalisation of student accommodation as an
alternative property sector in many countries. The following sections will highlight the
significance and dynamics of the student accommodation property sector.

Drivers
The list “Student accommodation investment drivers” shows the various drivers of the
student accommodation property sector. Globally, the increase in international student
numbers in many countries has been a key driver. With increased mobility, international
students, particularly from China and India, have sought quality university educations
overseas with increased expectations for subsequent enhanced employability. This has seen
an increased focus on university league tables of world university rankings (e.g. Times
Higher Education World University Rankings, QS World University Rankings) and intense
competition globally by universities to attract the best international students and the
associated international student tuition fees. This is in addition to the traditional strong
domestic demand by local students for student accommodation.
Student accommodation investment drivers are as follows:
• increased international student numbers;
• supply/demand imbalance;
JPIF • regulatory changes;
36,6 • increased investor appetite;
• long-term leases;
• attractive yields;
• low risk;
526
• steady income stream;
• resilience against market downturn;
• diversified portfolios;
• reduced role by universities in student accommodation;
• increased role of regional markets (vs main cities);
• professional operator platforms;
• low vacancy rates;
• fewer structural challenges than the other property sectors (e.g. retail); and
• need for international market “brand” by operator.
Clearly, this has a flow-on effect into student accommodation demand in close proximity to
the university campus. The subsequent increased demand for high-quality PBSA has seen
an extension from the typically lesser quality and older campus-based student
accommodation. The quality and scale of these PBSA projects is clearly reflected in this
new generation of student accommodation, particularly compared to old-style university
student accommodation. In many markets, there is a clear undersupply of PBSA, this being
the focus of institutional investor interest in this alternative property sector.
Attractive features such as long-term leases (up to 35 years), attractive yields
(approximately 5.3 per cent in UK in 2017; CBRE, 2017), steady income stream, resilience
against a property market downturn due to other economic factor drivers and low vacancy
rates see a property industry view that student accommodation is an alternative property
sector with low risk and diversification benefits. This property industry view will be
empirically tested in a subsequent section of this paper. The attractiveness of student
accommodation as an investment has not been constrained to the major UK cities, but has
also extended to regional markets with high-quality universities.
As universities have moved away from being the traditional primary provider of student
accommodation, this has also seen professional student accommodation operators develop
sophisticated operating platforms and strong links to universities in delivering the
operational side of high standard student accommodation. This has seen many operators
seeking to develop an international market “brand” to capture the global developments in
the demand for student accommodation.

Risk factors
The list “Student accommodation investment: risk factors” details the various risk factors
for the student accommodation sector. A critical risk factor is changes in government policy
regarding international students. Examples include changes in visa requirements and
increased tuition fees. In the UK, this has been relevant due to the possible implications in
the impact of Brexit for EU students (CBRE, 2016), as well as most universities significantly
increasing their fees for both domestic and international students in recent years. For
international students, currency fluctuations can also significantly impact international
student numbers, with the personal impact on their education fees and living costs.
 Student accommodation investment: risk factors are as follows: Student
• government policy: visas, tuition fees; accommodation
• demographic changes;
• quality of operator;
• asset deterioration;
527
• currency fluctuations;
• collaborations with universities;
• oversupply, delivery model;
• online courses;
• reputational risk; and
• impact of Brexit.
A critical risk factor is the quality of the student accommodation operator. This is an
essential requirement for institutional investors on the operational side, requiring
professional operators with strong university linkages and collaborations. These linkages
have recently been reinforced via JVs with investors. Reputational risk and the need to
provide secure, safe locations and a duty of care for students in this student accommodation
are also risk factors. Demographic changes domestically can also impact the number of local
students seeking university education and hence student accommodation.
At a broader level, the impact of technology on university education and the increasing
popularity of online courses see a reduced need for students to be on-campus, with the
potential flow-on effect into student accommodation demand.

Property investment players

With the increasing investor acceptance of student accommodation as an attractive
alternative property sector, there has been increased property investment players in the
student accommodation space. Table I lists the major players, both in the listed and
non-listed property investment vehicles provided. Student accommodation REITs are now
available in the USA and UK (e.g. GCP Student Living, Empiric Student Property, UNITE),
as well as UK non-listed funds. Amongst the major property fund managers, the authors

REITs
USA: American Campus Communities, Education Realty
UK: GCP Student Living, Empiric Student Property, UNITE
UK non-listed funds
Unite Student Accommodation Fund, Cordea Savills Student Accommodation Fund
Property fund managers: global
GSA Patrizia Aberdeen
BlackRock Tristan BMD
Commerz Starwood Corestate
Hines Heitman HQ
L&G Brookfield M&G Table I.
Principal AMP Rockspring Examples of student
UBS Clarion Goldman Sachs accommodation
CBRE GI Harrison Street Greystar property fund
LaSalle Le Francais TH RE managers: listed and
AXA Mapletree Union non-listed
JPIF have identified over 35 major players with student accommodation in their funds, often
36,6 across various local and international markets. This includes the USA, UK, Australia,
Ireland, Germany, Spain and Canada, as well as Japan and China.
The list “Leading property fund managers with student accommodation in their property
portfolios: % and $” details the major property fund managers with student accommodation
in their property portfolios. Several have multi-billion dollar exposures to student
528 accommodation (e.g. Principal, Mapletree, Corestate), with typical levels being 1–2 per cent
of their total property exposure. Importantly, these exposures have increased in recent years
as student accommodation has taken on more stature as an alternative property sector.
Quotes from leading property fund managers regarding student accommodation are given
in the list “Quotes regarding student accommodation from leading property fund
managers”, including views from GSA, Hines, Mapletree, Europe Capital and Macquarie
regarding the integrity and stature of how they see the student accommodation sector.
The stature of these players and their positive view of student accommodation as an
alternative property sector further reinforces the importance of this property sector.
However, some property fund managers are more cautious regarding student
accommodation, typically citing the sector being too specialised, too high maintenance,
incorporating business risk, requiring a specialised operator, having limited alternative use
and having difficulties achieving scale (Newell and Manaf, 2017).
Leading property fund managers with student accommodation in their property
portfolios: % and $ are as follows:
• Principal: 2.2 per cent; $1,640m;
• Mapletree: 4.4 per cent; $1,338m;
• Corestate: 7.1 per cent; $1,143m;
• Aberdeen: 1.0 per cent; $591m;
• Tristan: 5.8 per cent; $577m;
• Hines: 0.5 per cent; $497m;
• BlackRock: 1.9 per cent; $415m; and
• Clarion: 1.0 per cent, $412m; M&G: 0.7 per cent, $293m.
Source is the authors’ compilation from I & P RE (2017).
Quotes regarding student accommodation from leading property fund managers are as
follows:
The student accommodation sector has excellent investment fundamentals with a well-documented
supply shortage. (Macquarie)
High demand for university places continues to drive need for well-managed, purpose-built student
accommodation. (Global Student Accommodation (GSA))
Capitalise on continued shortfall of high quality PBSA in top tier university towns in UK. (Europe
Capital)
Demand for high quality, safe, well-located accommodation is increasing. (Hines)
We are very committed to the student accommodation sector and expanding our growing portfolio
in other European markets. (Hines)
Student accommodation forms a key part of our diversification strategy. (Hines)
Student accommodation is big business and relatively low risk. (Mapletree)
The source is miscellaneous media releases from property fund manager websites.
Institutional investors Student
With the institutionalisation of student accommodation as an alternative property sector, accommodation
several pension funds and sovereign wealth funds have actively included student
accommodation in their property portfolios in recent years. Table II shows these major
institutional investors; these include GIC, CPPIB, PGGM and Temasek. Often, they have
established multi-country exposure to student accommodation; examples include GIC (USA,
UK, Australia, Germany), CPPIB (US, UK, Spain, Germany) and APG (UK, Australia). 529
Investments into the student accommodation sector have been via various channels
including both direct investment and property funds.
Strong linkages to professional operators and developers have also characterised these
investments. This has been via PBSA, as well as providing a student accommodation
development pipeline with strong university linkages. The stature of student
accommodation as a property sector amongst these leading institutional investors is
clearly shown in the quotes in the list “Quotes regarding student accommodation from
leading institutional investors and major property players” from leading players such as
GIC, CPPIB and APG, as well as from JLL. This positive view by these leading
international institutional investors regarding student accommodation further reinforces
the current attractive investment features of student accommodation. However, some
other institutional investors have been more cautious, citing student accommodation as
not meeting their core mandate, not being part of their property strategy, being too small a
sector and presenting scale issues, as well as seeing student accommodation as being a
proxy for their residential property exposure (Newell and Manaf, 2017). This issue of
student accommodation being a proxy for residential property exposure is assessed
empirically later in the paper.
Quotes regarding student accommodation from leading institutional investors and major
property players are as follows:
Purpose-built student accommodation is an emerging asset class, supported by strong domestic
and international demand growth. (Infratil)
The student housing sector is an attractive sector with strong fundamentals. (CPPIB)
Student housing sector is attractive for its resilient income streams. (GIC)
The sector provides superior risk-adjusted returns potential and is poised to become a mainstream
asset class in the coming years. (APG)
We believe student accommodation will be a sector to deliver steady rental growth and resilient
income returns. (GIC)
Robust and defensive qualities support strong levels of interest in student accommodation. ( JLL)
Having an experienced operating partner is critical for investing successfully in this niche sector.
(Tristan Capital)
Source is miscellaneous media releases from institutional investor and major property
player websites.

Table II.
GIC CPPIB
Leading institutional
APG Bouwinvest investors with student
PGGM ICBC accommodation
Temasek in their
Source: Authors’ compilation from pension fund and sovereign wealth fund websites property portfolios
JPIF Operators
36,6 Highly professional operators of student accommodation with sophisticated operating
platforms have emerged in recent years to supplement this property fund manager and
institutional investor activity. These include UNITE, Liberty Living, CRM Students, Fresh
Student Living, Housing for Students, Campus Living Villages, Sanctuary Student Housing,
UPP, 360 Developments and Vero Living. Often, they are seeking to develop an international
530 “brand” in the sector, to develop an international operational role, as well as having strong
links to various institutional investors. This has seen some operators acquired by these
institutional investors or strong professional linkages developed.

Student accommodation and residential property

Many investors have previously considered student accommodation as a proxy for residential
property, and hence did not consider a separate allocation for student accommodation in their
property portfolio. The survey by IPF (2015a, b) saw only 16 per cent of UK institutional
investors favouring student accommodation compared with the private rental sector (31 per cent)
and development land (29 per cent) in obtaining their residential exposure. This view has
softened in recent years and is clearly reflected in major institutional investors now seeking
exposure to student accommodation via PBSA, as student accommodation has become an
institutionalised alternative property sector globally. This view will be empirically tested in a
subsequent section of this paper.

The UK student accommodation perspective

Globally, international students are expected to account for 7m students by 2020, up from
only 4.1m students in 2014. The UK is the second most popular market for international
students, only exceeded by the USA (no. 1), with Australia being the third most popular
market ( JLL, 2017b). This is driven by the UK having leading world-class universities,
including Oxford (no. 1), Cambridge (no. 2), Imperial College London (no. 8), UCL (no. 16) and
LSE (no. 25), with 25 UK universities being in the global top 200 universities (Times Higher
Education, 2017). These major universities are both London-based and in regional cities.
With over 1.7m full-time students in the UK, international students account for 23 per cent
of these students; there now being over 397,000 international students in the UK. This number
of international students has increased 70 per cent over the last decade, now being a £26bn
market (Cushman & Wakefield (C&W), 2017).
This has generated an increased demand for student accommodation, for both
university-owned and PBSA. The PBSA market share in the UK is 34 per cent, significantly
exceeding the other European markets (e.g. Ireland, 16 per cent; France, 15 per cent;
Germany, 11 per cent; the Netherlands, 7 per cent; Spain, 5 per cent; and Italy, 2 per cent)
( JLL, 2017b). This sees 602,000 purpose-built bed spaces for student accommodation
available in 2017 in the UK (C&W, 2017).
As well as the property funds and institutional investors now in this UK student
accommodation space, a large number of operators are also now involved, including UNITE,
Liberty Living, CRM Students, Fresh Student Living, Housing for Students, Campus Living
Villages, Sanctuary Student Housing, UPP, 360 Developments and Vero Living. Often these
operators enjoy strong institutional investor links, as well as strong university links (Savills,
2016), and play a key role in the operational quality of student accommodation in the UK.
This has been supported by strong transaction volumes in student accommodation in
recent years, being over £11.8bn in 2014–2016. Top 2017 transactions included the Downing
Portfolio (3,644 beds; £439m; purchaser ¼ Tristan Capital), Union State Portfolio (5,534 beds;
£410m; Liberty Living), Rose Three Portfolio (4,175 beds; £295m; Brookfield), Aston Student
Village (3,067 beds; £227m; GIC/Unite) and West Campus Residences (1,462 beds; £155m;
UPP) (C&W, 2017).
 All of the above specific detail concerning UK student accommodation and university Student
education further validates the significance and institutionalisation of student accommodation
accommodation as an alternative property sector. The following sections will empirically
assess the investment performance of UK student accommodation, compared with the other
UK major assets. The property industry view that student accommodation is low risk and
has diversification benefits will also be empirically assessed.
531
Methodology
UK student accommodation series
The UK student accommodation series used was the CBRE UK student accommodation total
returns index (£) available annually over September 2011–September 2017 (CBRE, 2017). This
CBRE UK student accommodation total return index is only available since 2011. In September
2017, this UK student accommodation index comprised 219 properties with 65,531 beds, with
an estimated market value of £9.5bn. The UK student accommodation index comprised both
London and regional student accommodation properties, with the student accommodation
index only available at the UK national level. Considerable growth in this CBRE UK student
accommodation portfolio has occurred over this period; e.g. 2010 (no. of properties ¼ 68; no. of
beds ¼ 22,464), 2014 (no. of properties ¼ 75; no. of beds ¼ 26,786), 2016 (no. of properties ¼ 154;
no. of beds ¼ 43,037). Over this period, this sees a 220 per cent increase in the number of
properties and a 192 per cent increase in the number of beds in the CBRE UK student
accommodation index portfolio, further reinforcing the stature of this UK student
accommodation series. An equivalent MSCI UK student accommodation performance series
is not available.

Other data sources

Annual total returns (£) were also assessed over the seven-year period of September
2011–September 2017 for UK direct property, REITs, stocks, bonds and cash. UK direct
property were assessed using the MSCI UK quarterly direct property index, with the MSCI UK
property series being the benchmark series for UK property, consistent in methodology with the
other MSCI direct property series. In September 2017, this UK direct property series comprised
8,943 properties valued at £152.2bn. For the various property sub-sectors, this comprised retail
(no. of properties ¼ 3,196; value ¼ £60.0bn), office (no. ¼ 1,716; £42.9bn), industrial (no. ¼ 2,263;
£31.8bn) and residential (no. ¼ 679; £3.8bn) (MSCI, 2017). Equivalent “benchmark” UK asset
class series also used were the FTSE/EPRA/NAREIT UK REIT series, FTSE 100 UK shares,
ten-year government bonds and 90-day bills, these being obtained from Datastream.
To ensure that the inferences drawn from the risk-adjusted analysis of this data are valid,
it is important that the various total return series for student accommodation, direct property
and the other asset classes are comparable. As well as MSCI being the benchmark UK
property series, they use the standard procedures for assessing total return performance for
direct property (capital and income components), being consistent with the other MSCI direct
property series globally where the use of valuations rather than transactions is required.
While the equities and bond total return series are transaction-based, they can still be
compared with direct property as the same underlying methodology is used. However, the
lack of a long time series (only seven years) for this analysis precludes adjusting for
valuation-smoothing in the property series to account for the use of valuations rather than
transactions. In the case of the CBRE student accommodation data used to generate these total
returns for UK student accommodation, they are based on the valuations of over 200 student
accommodation properties using the standard RICS valuation methodologies for commercial
property, as well as using the same major property advisory groups such as JLL, CBRE and
Savills to perform these valuations. Hence, there is sufficient comparability in methodology
across the various total return series to ensure valid inferences from these analyses.
JPIF Statistical analysis
36,6 For the various UK student accommodation, direct property, REITs, stocks and bond series,
risk-adjusted returns were assessed over the seven-year period of September 2011–September
2017, this being the full period for the coverage of the UK student accommodation series.
As this period of 2011–2017 does not cover a full business cycle, this can potentially
impact the relative performance of the various asset classes; however, 2011–2017 is the full
532 timeframe for which the CBRE UK student accommodation series is available. Average
annual returns and annual risk were calculated. Risk-adjusted returns were assessed using the
Sharpe ratio. Mixed-asset portfolio diversification benefits were assessed using correlation
analysis, as well as constrained asset allocation diagrams used to assess the role of UK
student accommodation in a mixed-asset portfolio for different types of property investors.
The risks for the UK student accommodation and direct property series were not adjusted for
valuation-smoothing due to the limited annual timeframe for UK student accommodation,
and the resulting loss of one year of data in the valuation de-smoothing process. This sees
the potential underestimation of the risk attached to UK student accommodation and
direct property.
The methodology used in this paper to examine these two important research questions
are the standard procedures to examine the role of a specific property sector in a mixed-asset
portfolio. Previous papers using these empirical procedures include the role of UK REITs
(Newell and Marzuki, 2016), the role of German REITs (Newell and Marzuki, 2018a), the role of
French REITs (Newell et al., 2013), the post-GFC role of US commercial property (Marzuki and
Newell, 2017), the role of property companies on the AIM stock market (Newell and Marzuki,
2018b) and the role of alternative property sectors in a US portfolio (McIntosh et al., 2017).
Importantly, these standard procedures have enabled a very clear picture to emerge regarding
the strategic role of student accommodation in a mixed-asset portfolio, with significant
institutional investor implications.

UK student accommodation performance analysis

Risk-adjusted returns
Table III presents the risk-adjusted performance of UK student accommodation with the
other direct property sectors over September 2011–September 2017. This enables a rigorous
comparison of student accommodation with the other “benchmark” property series. Student
accommodation delivered the second highest returns (11.69 per cent pa), only exceeded by
industrial property (11.80 per cent pa). Importantly, student accommodation had the lowest
risk level (3.19 per cent), below the risk for total property (5.36 per cent) and each of the
property sectors. The resulting risk-adjusted returns (via Sharpe ratio) saw student
accommodation being the best-performed property sector (3.55), ahead of total property
(1.69) and each of the property sub-sectors.
Table IV presents the risk-adjusted performance analysis of UK student accommodation
in the fuller mixed-asset portfolio context. This enables a rigorous comparison of student

Asset Average annual returns (%) Annual risk (%) Sharpe ratio

Student accommodation 11.69 3.19 3.55 (1)

Table III. Total property 9.44 5.36 1.69
Risk-adjusted
Office 11.29 7.26 1.51 (5)
performance analysis
of student Retail 7.07 4.45 1.51 (4)
accommodation and Industrial 11.80 7.22 1.58 (3)
other property sectors: Residential 11.59 3.75 2.98 (2)
2011–2017 Source: Authors’ compilation/analysis
accommodation with the other asset class “benchmark” series. In this case, student Student
accommodation delivered the highest returns (11.69 per cent pa), ahead of REITs (10.75 accommodation
per cent pa), total property (9.44 per cent pa) and stocks (8.07 per cent pa). The risk for
student accommodation was low (3.19 per cent), particularly compared to the risk for stocks
(9.93 per cent) and REITs (12.96 per cent). The resulting Sharpe ratios saw student
accommodation delivering the best risk-adjusted performance (3.55), exceeding bonds
(second; 3.18), total property (third; 1.69), REITs (fourth; 0.80) and stocks (fifth; 0.78). 533
In terms of student accommodation being a proxy for residential exposure, student
accommodation delivered marginally higher average annual returns (11.69 per cent pa vs
11.59 per cent pa) at lower risk (3.19 vs 3.75 per cent), resulting in superior risk-adjusted
returns (3.55 vs 2.98), as well as this indicating initial evidence of student accommodation
not being a proxy for residential exposure.
This analysis confirms the strong risk-adjusted performance of student accommodation
in both a property context and fuller mixed-asset portfolio context. It also validates the
property industry comment that student accommodation is low risk.

Diversification benefits
The property portfolio diversification benefits of UK student accommodation in a UK property
portfolio are shown in Table V. Student accommodation is not significantly correlated with any
of the direct property sectors ( po5 per cent), reflecting significant diversification benefits for
student accommodation. For example, r ¼ 0.46 for student accommodation and direct property.
This is in marked contrast to the significant correlations between the retail, office and industrial
direct property sectors (r ¼ 0.83-0.92), reflecting a lack of diversification benefits between the
major direct property sectors in a property portfolio. The non-significant correlation for student
accommodation with residential property (r ¼ 0.28) further confirms that student
accommodation and residential property behave differently. This is in contrast to the view of
many institutional investors that student accommodation is a proxy for residential property,
often being their first exposure to the residential property space. While these results may be
limited by the short analysis timeframe, they highlight the potential diversification benefits of
student accommodation in a property portfolio.

Asset Average annual returns (%) Annual risk (%) Sharpe ratio

Student accommodation 11.69 3.19 3.55 (1) Table IV.

Risk-adjusted
Total property 9.44 5.36 1.69 (3)
performance analysis
Bonds 2.81 0.77 3.18 (2) of student
Stocks 8.07 9.93 0.78 (5) accommodation vs
REITs 10.75 12.96 0.80 (4) other major assets:
Source: Authors’ compilation/analysis 2011–2017

Student accom. Total property Retail Office Industrial Residential

Student accommodation 1.00

Total property 0.46 1.00
Retail 0.26 0.97* 1.00
Table V.
Office 0.51 0.97* 0.92* 1.00
Diversification
Industrial 0.55 0.92 0.83* 0.85* 1.00 benefits of student
Residential 0.28 0.52 0.61 0.46 0.35 1.00 accommodation and
Note: *Significant at p o0.05 other property sectors:
Source: The authors’ compilation/analysis 2011–2017
JPIF In the fuller mixed-asset portfolio context, Table VI shows the diversification benefits of
36,6 UK student accommodation. Student accommodation is again not significantly correlated
with any of the other major UK assets. For example, r ¼ −0.55 for student accommodation
with stocks, r ¼ −0.39 for student accommodation with bonds and r ¼ 0.34 for student
accommodation with REITs. Typically, UK student accommodation provided at least
comparable diversification benefits to UK direct property with the major UK assets;
534 e.g., stocks (−0.55 vs −0.64), bonds (−0.39 vs 0.19) and REITs (0.34 vs 0.41). This also
validates the property industry view that student accommodation provides diversification
in a portfolio.

UK student accommodation in the mixed-asset portfolio

This stronger performance of UK student accommodation highlights the potential for UK
student accommodation to play a significant role in the mixed-asset portfolio. Figures 1
and 2 show the constrained asset allocation diagrams for the mixed-asset portfolio for UK
student accommodation, direct property, REITs, stocks and bonds in the 2011–2017
period under two investor scenarios. In each case, a constrained asset allocation analysis
was conducted to assess the practically implementable portfolio weightings for UK
student accommodation, direct property and REITs. This is in the context of the modest
size of the student accommodation market, relative to the more substantive size of the
traditional property investment sectors of office, retail and industrial property favoured

Student accom. Total property REITs Stocks Bonds

Table VI. Student accommodation 1.00

Diversification Total property 0.46 1.00
benefits of student REITs 0.34 0.41 1.00
accommodation vs Stocks −0.55 −0.64 −0.17 1.00
other major assets: Bonds −0.39 0.19 0.18 −0.43 1.00
2011–2017 Source: The authors’ compilation/analysis

100%
90%
80%
Portfolio allocation

70%
60%
50%
40%
30%
20%
10%
0%
Figure 1. 0.50% 1.15% 1.79% 2.44% 3.09% 3.73% 4.38% 5.03% 5.67% 6.32% 6.97%
Student
accommodation asset Portfolio risk
allocation diagram: Bonds Stocks Total property REITs Student accom.
2011–2017: scenario 1
Source: Authors’ compilation/analysis
 100% Student
90% accommodation
80%
Portfolio allocation

70%
60%
50% 535
40%
30%
20%
10%
0%
0.61% 1.29% 1.97% 2.65% 3.33% 4.01% 4.69% 5.37% 6.06% 6.74% 7.42% Figure 2.
Student
Portfolio risk accommodation asset
Bonds Stocks Total property REITs Student accom. allocation diagram:
2011–2017: scenario 2
Source: Authors’ compilation/analysis

by property investors. It is also in the context of student accommodation being an

alternative asset, with the associated issues of scale and whether enough product is
physically available.
In this first scenario constrained asset allocation analysis, student accommodation was
constrained to a maximum level of 5 per cent in the mixed-asset portfolio, and both direct
property and REITs were each limited to a maximum level of 10 per cent in the mixed-
asset portfolio (see Figure 1). This first scenario is more applicable to smaller property
investors, where student accommodation can account for up to 20 per cent of their total
property exposure, i.e. student accommodation at 5 per cent, direct property at 10 per cent
and REITs at 10 per cent. This resulted in UK student accommodation playing a
significant role across the full portfolio risk spectrum, at its maximum level of 5 per cent.
An important role for UK direct property and UK REITs was also evident across most of
the portfolio risk spectrum (except at the lower risk levels), with a more significant role for
UK stocks also evident in this constrained asset allocation at the higher risk levels.
This asset allocation context for UK student accommodation over this period reinforces
the added-value role of UK student accommodation in the UK mixed-asset portfolio, being
at its maximum level across the entire portfolio risk spectrum for this smaller type of
property investor under scenario 1.
For the second scenario constrained asset allocation analysis, student accommodation
was constrained to a maximum level of 1 per cent in the mixed-asset portfolio
(see Figure 2). This sees student accommodation as potentially accounting for
approximately 5 per cent of the property portfolio, i.e. student accommodation at 1 per
cent, direct property at 10 per cent and REITs at 10 per cent. This scenario is more
applicable to larger property investors, as it places the potential allocation to student
accommodation in the fuller property investment context, particularly given the modest
size of the student accommodation sector relative to the substantive size of the traditional
property investment sectors of office, retail and industrial property. It is also consistent
with the current allocations to student accommodation by the larger property investors
(see the list “Leading property fund managers with student accommodation in their
property portfolios: % and $”). Again, student accommodation is seen as playing a
significant role across the full portfolio risk spectrum, at its maximum level of 1 per cent,
JPIF and thus accounting for approximately 5 per cent of the total property exposure.
36,6 A continued important role for UK direct property and UK REITs was again evident. This
second scenario reinforces the added-value role of student accommodation for the larger
property investors and validates the practical levels of student accommodation seen in the
list “Leading property fund managers with student accommodation in their property
portfolios: % and $”.
536 Overall, while past performance is no guarantee of future performance, this analysis
presents a positive investment context for UK student accommodation moving forward.
As such, in terms of the original two research questions (RQ1 and RQ2) in this paper, this
empirical analysis confirms the performance and significant role of UK student
accommodation in the UK property portfolio and mixed-asset portfolio under two
investor type scenarios, as well as the important roles of direct property and REITs. It also
validates the property industry view that student accommodation is low risk and provides
diversification benefits in a property portfolio and mixed-asset portfolio. This analysis also
confirms that student accommodation should not be seen as a proxy for residential property
exposure for institutional investors, this being contrary to the standard institutional
property investor view. A longer timeframe for this analysis will hopefully further validate
the robustness of the strategic contribution of student accommodation in a UK property
context and UK mixed-asset portfolio context, as well as the continued momentum of the
institutionalisation of student accommodation as an alternative property sector.

Property investment implications for student accommodation

This paper has addressed two key research questions and empirically highlighted the
added-value role of student accommodation, particularly in the risk-adjusted performance of
UK student accommodation compared to direct property, stocks and REITs. This saw a
significant role for student accommodation in a UK mixed-asset portfolio across the full
portfolio risk spectrum for both small investor and large investor scenarios, as well as
student accommodation not being seen as a proxy for residential property exposure for
institutional investors.
This performance analysis of UK student accommodation has provided a very strong
investment context for student accommodation as an alternative property sector. This is
particularly in the context of the increased institutionalisation of student accommodation as
an alternative property sector by leading pension funds and sovereign wealth funds
globally. This sees student accommodation as an important alternative property sector
going forward at all levels: the property level, investor level and community/student level.
It also highlights key issues for student accommodation as an alternative property
sector, relative to the major property sectors. From a practical perspective, scale could be a
potential problem, with concerns over enough physically available product being available
for investors. Importantly, this recent focus on student accommodation is not limited to just
the UK. Student accommodation has been strongly supported by a wide range of
institutional investors (including GIC, CPPIB, APG and PGGM; see Table II) and major
property fund managers (see Table I) in a wide range of countries (in addition to the UK)
including the USA, Canada, Australia, Germany and Spain. Often these investors have
student accommodation exposure across several countries. This investor attractiveness
across these various markets is driven by student accommodation having bond-like
properties as an asset class, with the cash flow nature of the student accommodation asset
making it attractive to many investors in an income-driven investment market. This
reinforces the “place” of student accommodation as an alternative asset relative to the other
property sectors typically used by investors.
Importantly, the student accommodation sector dynamic is strongly supported by the
key drivers of student demographics (both local and international student growth) and
investor demand. While there are risk factors (e.g. government policy, potential oversupply), Student
and operational issues (e.g. need for high-quality operator), the strong institutional investor accommodation
appetite for student accommodation at a UK and global level is expected to continue to see
the further institutionalisation of student accommodation as an alternative property sector.
Some industry players are now seeing student accommodation moving from being an
alternative property sector to a more mainstream property sector. This is further supported
by many universities seeking to be less engaged with their student accommodation and 537
seeking to free up capital from their balance sheets for the more primary university
functions of teaching and research.
Whilst this paper has used a standard empirical analysis to explore the role of
student accommodation in a mixed-asset portfolio, it has enabled a very clear picture
regarding the strategic role of student accommodation as an alternative property sector
going forward in both a UK context and international context. The stature of the
institutional investors and property fund managers in the student accommodation space
has added further stature to student accommodation as an increasingly important
alternative property sector in many countries.

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Corresponding author
Graeme Newell can be contacted at: g.newell@uws.edu.au

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