And also, why do student housing projects seem to produce a higher yield than conventional multifamily investments?
I think the view is that student housing has constant demand and insufficient supply and that prospects for students needing housing will remain strong. Lately, multifamily in some markets is viewed as being in oversupply and has lower barriers to entry to build more units than does student housing.
There are several forces that constantly drive the increase. The number of undergraduates studying away from their home region has increased by more than 30% over the last ten years. Several favorable policy have been made. Acceptance rate is relatively high. Student housing is rightly regarded by Asian investors as a defensive asset class. Default risk of rental income is low. Higher education enjoys greater appeal during periods of lower employment. This market is driven by demographics rather than by investment cycles. Yields on PBSA (Purpose Built Student Accommodation) deals continued to track down in 2017. The volume-weighted average yield in 2017 was 5.7%, reflecting a 4.5% spread to 10-year gilts. The first half of 2018 suggests yields are tightening further, with yields averaging 5.5%. That also represents a narrower spread to gilts, 4.0%, which had already begun to rise in anticipation of higher Bank of England base rates announced in August.
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