Nido House View Q4 2021

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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Reflections on the year gone:

House view PBSA Investment Market Outlook, UK and Europe - Q4 2021 This is the fifth in our regular series of purpose-built student accommodation (PBSA) investment House View, reflecting the fast-paced changing environment in which Nido are developing and operating PBSA across the UK and Europe.

Here we take an in-depth look at key themes driving the PBSA sector and are particularly important from an operations perspective, directly translating to key considerations from investors going forward.

This House View also looks towards the future for all stakeholders involved in PBSA, drawing on Nido’s operational expertise and insight of the PBSA market gained through Nido’s successful UK, Ireland and Germany operations and ongoing pan-European expansion.

Contents

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1. Trends & Key Points

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2. UK Tailwinds & Headwinds

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3. International Markets

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4. Further insights and Reading

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

Darren Gardner, Nido COO

“The past year has been nothing but challenging – however, we love a challenge as it helps us be the best in the game. The challenges of the pandemic necessitated thinking outside the box, and it is these innovations which enabled us to operate as market leaders, providing a superior service for our residents, and a resilient offering to our investors.

On the operations side, we took regular surveys from our residents and listened to what they needed. Across the UK and Europe, the resounding feedback was the need for support, which we offered, consistently. We increased on the ground support, introduced a wellbeing psychologist, and continued our events programme for residents to attend in person or online. We also introduced the Nido app to provide our residents with a safe space to communicate, share ideas on forums and organise their respective lives.

This year has also seen large amounts of growth and investments into the sector. Following a strong year of mobilisation across Europe that allowed us to demonstrate our strengths as leading operator, we were appointed as the primary operating partner for one of the largest mandates into European PBSA through a joint venture with Round Hill Capital and CPPIB. We look forward to the year ahead and expanding our footprint.”

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House View Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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3. TRENDS & KEY POINTS Europe w Rapidly growing student populations across both the UK and

Europe are driving demand for PBSA. Students from overseas are 60% more likely to choose PBSA, and with international and domestic migration normalising, as well as seeing international applications to UK & European universities skyrocket, the demand for quality PBSA offerings will only increase. Domestic students are also finding increasing appeal in the safety and security of PBSA compared with the inconsistency and uncertainty of private landlords and the HMO sector.

w Quality remains key as it has become apparent throughout 2021

that students now demand higher standards and provisions from their accommodation. Many PBSA operators are looking to surpass the provisions of the private-rented sector by offering flexible booking, fully digitalised customer journeys, increased communications with students through apps, social events, and wellbeing and pastoral services.

w Demand is diversifying across Europe as international students

target UK and EU university centres. The strong linguistic and cultural ties between the Iberian Peninsula and Latin America mean that many Central and South American students are leaving their countries to study at regional universities across Spain and Portugal. Ireland is becoming a highly-desired location for students steering away from Brexit complications in the UK and the high-cost of American universities for Englishspeaking courses. Similarly, the Turing Scheme will offer places to UK students to study ETBs within and beyond the scope of the Erasmus+ programme.

w Demographic shifts are changing the face of PBSA occupancy

across the UK and continental Europe. In the UK, exit from the Erasmus+ programme has seen a mass exodus of EU students studying at British universities, but an increase in domestic students and non-EU international students, especially from China and India. In continental Europe, the losses of British Erasmus+ students will be minimal as some UK students seek English Taught Bachelor’s (ETBs) at European universities, as well as an additional 40,000 students once the UK Government’s Turing scheme commences. The internal migration of EU students to other EU universities has also increased as the Erasmus+ programme loses the UK as a destination.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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4. UK Tailwinds & Headwinds Tailwinds UK Tailwinds

w Investor Sentiment - Investor interest in the UK PBSA market has grown substantially in 2021. With growing application and attendance rates across the UK’s top universities, and supply still limited in HMO markets, student demand for PBSA has rocketed.

This year has seen over £3.9 billion invested into the UK PBSA market, with nearly £15 billion ready to be liquidated into the market in 2022, as the PBSA sector continues to produce higher and more consistent yields than other rental asset classes.

w Market Conditions - Education is counter-cyclical. Universities

saw an 11.6% rise in applications as workers turned to higher education to upskill ahead of more favourable labour market conditions, translating into PBSA occupancy levels nearing or achieving maximum capacity. Nido achieved its occupancy targets for the 2021/2022 academic year across 5,000 operational beds in the UK, with high rebooking and referral rates.

w The Government’s levelling up white paper is expected in Q1

2022. Its focus on higher education premiums and resource allocation spell good news for PBSA investment in regional higher education clusters. With nearly 79% of Russell Group universities outside of London, generating a total of £87 billion a year to the UK economy, the potential for further investment into these research centres is vast.

w Impacts of Covid-19 - With 90% of students in higher education have received a Covid-19 vaccine, and increasingly students are choosing to attend university physically where available.

These results are promising and display a trajectory towards mitigating risk and disruption caused by Covid-19 in the future.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

UK Headwinds

w Impact of Covid-19 - New Covid-19 variants, such as Omicron,

have pushed universities to revert to online tuition, with potential for a knock-on effect on the PBSA market, with uncertainty around future lockdown measures causing further disruption.

w Nido has responded to the rise of hybrid university education by

embracing technology that adapts to an online offering. With a comprehensive virtual events programme, a flexible online bookings system, a resident’s app for internal communications, and online wellbeing support for residents with a qualified psychologist.

w Demographic Shifts - Well over 20,000 students used to participate in the Erasmus+ programme, and in turn, UK universities used to receive roughly 35,000 students from Europe. Since the UK left the Erasmus+ programme in 2020, those numbers have dried, leaving the UK at a deficit, even accounting for the students who would have studied abroad remaining to study domestically.

w The UK government’s Turing Scheme will provide funding for

40,000 UK students to study abroad in Europe. However, no reciprocal arrangement is in place for inbound placements.

The UK is therefore set to lose up to 75,000 students annually with knock-on implications for PBSA holdings in UK university towns, and the fees from overseas students who overwhelmingly prefer PBSA accommodation to HMO alternatives. However, the decrease in European students is anticipated to eventually be offset by increasing influxes of non-EU international students.

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5. international markets Germany

Ireland

w Demand has continued to outstrip provision of student

w Social changes and a growing potential student body in Ireland

w Demographic trends, a high proportion of students living away

w As part of a wider trend over European markets, a traditional

accommodation in Germany, with the provision rate of PBSA standing at only 10 to <20%. There is clear potential for providers like Nido to address the gap in service provision provided by some other operators.

from parents and a cultural preference for renting has continued to make Germany an attractive market for providers of PBSA, as well as co-living and blended living markets

w The German market has the potential to absorb recent

continues to widen the supply and demand gap for PBSA. Demand for student places in Ireland will grow from 168,000 in 2014 to nearly 193,000 in 2024 due to underlying demographic pressures, offering more opportunities for providers. centralisation of higher education providers has given way to high-quality offerings in the regions of Ireland. Although 43% of Irish students are still located in Dublin, this number has been falling and is forecasted to continue to decrease.

graduates and young professionals. Residents in Germany like the service provision, all-inclusive rents, professionally managed product, ease and convenience of booking provided by Nido.

Among Nido’s occupants, almost 20% are in this category.

w 2021 saw young Irish people more likely to go into higher

w Many of Nido’s German assets are located in areas to cater to

new Nido residences in Cork will include the 200-room Broga House, located 15 minutes from the University College Cork campus, and the innovative 500-room Ashlin House residence combining 5 blocks each with shared apartments and studio rooms and a three-bed townhouse. These assets will serve the array of colleges and universities in Cork and offer students a wide choice in living arrangements to suit their needs and budget.

young professionals, trainees and interns in addition to students.

In Nido’s Lilienthal Studios asset in Bremen, for example, bespoke Business Apartments are on offer to young professionals working in the regional offices of large corporations including Lufthansa, Airbus and Daimler AG.

w Co-location of universities with centres of graduate employment

is a key operational benefit of Nido’s assets in Germany.

Nido’s two assets in Baden-Wurttemberg, Nido Stuttgart and Nau Studios, both cater for young professionals and students studying at the University of Stuttgart, FH Stuttgart or HMDK or working for two local headquartered companies, Daimler and Porsche.

w Nido has continued its record of strong customer satisfaction

over Q4 of 2021, with 540/540 students surveyed in Germany recommending Nido. Nido’s average satisfaction rating in Germany now sits at 4.6*/5*. Customer satisfaction is also demonstrated by Nido’s full occupancy across all of their assets in Germany for the 2021/2022 academic year.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

education than ever before, with record numbers now choosing further study.

w To reflect this impressive growth in regional Irish higher education,

w Nido will soon be operating their new Ardee Point asset in

Dublin, a city with high demand for student accommodation and a very low PBSA provision rate. This asset will serve the large number of students clustered in the traditional centre of Irish higher education in the capital, including students from Trinity College Dublin, University College Dublin and Dublin City University.

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Spain & Portugal

Denmark w 2021 research from Savills showed that the number of

international students in Denmark more than tripled between 2004 and 2016. Copenhagen has an approximate provision rate for PBSA of only 16 per cent, with a clear imbalance between supply and demand that PBSA operators like Nido can fill.

w Nordic countries have cultural and demographic similarities

w 2021 has seen growth in the market for international higher

education offerings for the Spanish-speaking world. Nine of the top ten Spanish-speaking universities are in Spain, and the rise of students from across Latin America wishing to move continents to study in Europe represent an important target demographic for PBSA.

with the German market, with high levels of independent living for the student and young professional demographic, and an expectation of high-quality housing stock. Combined with buoyant land and property prices in Copenhagen, mixed PBSA and BTR offerings could match local preferences while delivering cost-effective land usage.

w In addition to high potential for international growth, the

w Denmark has proved to be a growing destination market for

growth of the student accommodation market. As an important cultural centre for the Portuguese-speaking world, it has 37,000 foreign students from Portuguese-speaking countries, with that number only likely to grow as more students from Brazil and Africa target higher education.

domestic student demographic in Spain is also growing, as young people’s attitudes change and the Spanish economy evolves. Current estimates of unmet demand in Spain stand at over 380,000 students.

w Portugal shares many of Spain’s unique opportunities for the

student housing providers, with recent PBSA offerings from Nuveen and Catella. The market for PBSA is maturing across the Nordics, with considerable unmet demand presenting an opportunity for growth.

The Netherlands

w Spain has two traditional regional centres in Madrid and

Barcelona, but regional universities are growing in importance.

Portugal has also seen the rise of Porto as a rival to Lisbon, with ten universities including the University of Porto and Fernando Pessoa University.

w As with other European markets such as Ireland and Portugal,

the emergence of prestigious and popular regional offerings from higher education providers has driven decentralised growth in the Netherlands. The Hague, Enschede and Utrecht are all ranked as especially attractive for PBSA providers.

w Nido is expanding its assets in the Iberian market in 2022.

Nido Lisbon will serve the University of Lisbon, ISCTE, and the Catholic University of Portugal, the latter ranked as the best Portuguese-speaking university in the world.

w Real estate investment volumes in the Netherlands have improved since a torrid Q1 start, when they were considerably lower (-66.8%) compared with Q1 2020.

w Like other European markets the supply and demand shortfall is acute and opportunities for providers are abundant. PBSA shortfall across the Netherlands is forecasted to rise to at least 33,000 units by the 2025-2026 academic year, an increase of over 6.5%. An expectation of high quality from students and young professionals accustomed to quality housing stock continues to drive a flight to quality to BTR and PBSA offerings.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

Pipeline Nido currently has a pipeline of 3,000+ beds for 2022 onwards across its European portfolio, covering Ireland, Spain, the Netherlands, Denmark, and Portugal.

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Further insight 5 key takeaways

further reading w BNP Paribas Real Estate UK Student Housing Market Update (2021)

w Catella Student Housing in Europe (2021)

1

Rapidly growing student populations across both the UK and Europe are driving demand for PBSA.

2

Quality remains key as it has become apparent throughout 2021 that students now demand higher standards and provisions from their accommodation.

3 4

Demographic shifts are changing the face of PBSA occupancy across the UK and continental Europe.

Demand is diversifying across Europe as international students target UK and EU university centres.

w CBRE Portugal Student Housing Review (2019) w Cushman & Wakefield UK Student Accommodation Report (2021)

w Higher Education Authority (Ireland) Annual Report (2020) w JLL Portugal Student Housing Report (2019) w JLL Spain Student Housing Report (2018) w Knight Frank Dublin Student Housing Report (2017) w Multirank Spanish Universities in Global Comparison Report (2021)

w Savills Global Living Report (2021) For further discussions on PBSA please contact Darren Gardner /COO of Nido, OR Brian Welsh / Head of Student at Round Hill Capital.

w Savills International Students Report (2020) w Savills Netherlands Student Housing Report (2019) w Savills Netherlands Real Estate Market Report (2021) w Savills Spotlight on UK Student Accommodation Report (2021) w Savills Spotlight on European Student Housing (2021)

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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About Nido Nido has been managing and operating student accommodation across the UK for over a decade and is currently expanding within Europe becoming the operator of choice for both investors and residents alike.

With more than 7,000 operational beds and students from over 100 countries booked into our accommodation across the UK, Germany and Ireland and more developments in the pipeline within continental Europe, Nido has a truly global perspective when it comes to student accommodation.

As a specialist PBSA operator, backed by Round Hill Capital, which itself has a strong residential portfolio and a global presence, our experts on the ground are able to provide trends and forecasts in this long-term structurally supported sector.

We know that success and income is driven by the consumer experience and it is important for us to understand what students want, how it differs from country to country and how we embed this into our design and operations to be the best in class, fully occupied and recognised for delivering excellent service and student wellbeing.

disclaimer This House View is being provided solely for informational purposes to the Recipient and its client(s) and is strictly confidential. This House View does not constitute investment advice and should not be relied upon as such. This House View must not be copied, reproduced, distributed or passed, in whole or in part, to any other person. This House View is not intended for distribution to, or use by any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation. This House View should not be used for any other purpose or shown to any other parties apart from the Recipient and its client(s).

No representation or warranty, expressed or implied, is or will be made and no responsibility or liability is or will be accepted by Nido Student, Round Hill Capital or any of its respective officers, servants or agents or affiliates as to, or in relation to, the fairness, accuracy or completeness of this House View or the information forming the basis of this disclaimer.

About Round Hill Capital Round Hill Capital is a globally renowned fully integrated real estate investment manager, specialising in innovative accommodation solutions across Europe and the USA. Since inception in 2002, Round Hill Capital has invested over $10.5 billion on behalf of institutional and private investors across 135,000 residential units and student housing beds. Round Hill Capital generates value through active and efficient operational management, from development through to tenant engagement informed by an expert understanding of the needs of the modern resident.

Round Hill Capital is a responsible landlord in multifamily living, student housing, senior living and serviced real estate, serving exceptional institutional and private investors with market leading opportunities that deliver value through insight, technological innovation and quality of delivery at every stage.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q4 2021

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