Nido House View Q3 2021

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House View

NIDO House view PBSA Investment Market Outlook, UK and Europe Q3 2021

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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House View

House view

1. Trends & Key Points

PBSA Investment Market Outlook, UK and Europe - Q3 2021 This is the fourth edition of our purpose-built student accommodation (PBSA) investment series House View, reflecting the fast-paced changing environment in which Nido are developing and operating PBSA across the UK and Europe. This quarters House View takes an in-depth look at key themes driving the dynamics of the PBSA sector and directly translates these into key considerations for investors going forward. It 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 as well as ongoing panEuropean expansion.

Contents

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1. Trends & Key Points

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2. UK Tailwinds & Headwinds

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3. European Markets

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4. In Depth: Emerging Themes

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5. Further Reading

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

w A bumper student intake drives soaring demand for PBSA:

Higher-than-average student intakes are evident across the continent

w Across all regions, students value neighbouring university

campuses to tap into a re-emerging social scene: Despite familiarity with remote working, Nido’s own research shows that 85% of students value being in close proximity to their university campus to benefit from the crucial experiential side of higher education. This demand persists even if a student’s university of choice is transitioning away from full-time face-to-face learning to a hybrid mix

w Quality remains a key differentiator within PBSA as both

domestic and international students strive for higher standards: Overseas students are 60% more likely to live in purpose-built student accommodation, with this proportion set to rise as the number of international students applying to UK and European universities exceeds previous years. International students potentially relocating thousands of miles to undertake a threeor four-year degree continue to push for higher standards of accommodation. Domestic students have also been wooed by the safety and security of PBSA compared with the uncertainty and inconsistency in the offering from private landlords

w Following a period of considerable uncertainty, students are

looking to PBSA to provide long-term security of accommodation throughout their degree courses: This presents an opportunity for PBSA to reassess its incentive offering and differentiate through student-led reviews of day-to-day management practices

w Demand is becoming more diversified, as international

interest targets European universities: Spanish and Portuguese universities already have strong cultural and linguistic links with Latin America, and regional universities across the Iberian Peninsula are set to capitalise on this exodus of talent. Brexit uncertainty and the high cost of American universities has resulted in Ireland emerging as well-placed to sweep up students who wish to study abroad in English. Equally, new study abroad opportunities like the Turing Scheme also open doors to universities previously outside of the Erasmus programme for British students.

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2. UK Tailwinds & Headwinds Tailwinds Applications

w UK university entry rates for students direct from school continue

to climb from 41.9% (652,790 applicants) in 2020 to 43.9% (682,010 applicants) in 2021. The number of prospective undergraduates securing university places through the clearing process has also increased, from 36.4% (2020) to 37.9% (2021)

w A record 43% of UK 18 year olds are now applying to study in higher education

w The quantum of international students has also increased

significantly. Despite travel restrictions creating uncertainty in Q4 2020 and Q1 2021, UCAS registered a 13% increase in nonEU applicants from 89,120 (2020) to 102,000 (2021). This suggests strongly that international students delayed entry during the Covid-19 Pandemic and much-anticipated ‘double-demand’ is now surfacing

w Latest HESA data records a total of 2.02 million full-time students studying in the UK, of which 1.18 million, or 61%, are studying outside of their home region

w This has translated into high levels of bookings for the 2021/22 academic year, particularly in prime regional direct letting

Impact of Covid-19

w An uptick in the number of 18-24 year olds receiving a Covid-19

vaccination has contributed to the decision to attend university physically. As of 26 October 2021, the total number of 18-24 year olds vaccinated with a first dose has increased to over 65%, trending close to those aged 30-39 (70%)

w A prevailing feeling of safety and security is also apparent in Nido’s

w By way of example, The University of East London posted 6 positive

cases in private residences and 1 staff member at the beginning of October 2021 of a student population of 17,000 and a staff population of 1,400 (0.005%). UCL posted a similar rate across a community of 47,000 students and 14,500 staff, while King’s College London has confirmed 110 cases from the beginning of term (13 September 2021) (0.28%)

Investor sentiment

w Investor interest in PBSA is expected to trend upwards after the university academic year starts between September and October as occupancy rates become more visible. Further stabilisation is anticipated at this juncture, with activity expected to increase across H2 2021, linked with the return to in-person learning

w Confidence in the PBSA sector is also anticipated to rally across Q3 2021 and Q4 2021 as evidenced by the consistent investment yields that the sector has demonstrated in transactions throughout the Covid-19 pandemic

Market conditions

w Despite challenging market conditions, rental growth remains

resilient and is expected to remain strong as future lockdown restrictions become less likely

w The re-badging of the Ministry of Housing, Communities & Local

Government to include ‘Levelling Up’ translates into a renewed focus on higher education premiums and resourcing to bridge the skills gap. Over the long-term, this reorientation to regional growth is expected to result in additional funding for university clusters

own research, where 84% of occupier-students were satisfied with the safety measures implemented at their Nido residences during Covid-19. 91% of students were happy with the level of communication throughout the Pandemic

w Nido has achieved occupancy targets for the 2021/2022 academic

w A systematic appraisal of cases reviewed and accounted for by

w Providing the currently positive student applicant statistics translate

individual universities also contributes to steady occupancy rates. Transparency in reporting has been widely welcomed and supports individual university responses. So far confirmed cases have been low despite the return to campus environments

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

year in the UK, Ireland, and Germany, across over 5,000 operational beds and reports consistently high rebooking and referral rates across all markets

into increased leasing, reducing the risk of both refund requests/’noshows’, we expect further capital allocation into the UK PBSA market. The sector remains on course to hit £4bn in transactions in 2021, above the long-term average

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2. UK Tailwinds & Headwinds Headwinds Applications

w The number of EU students applying to study in the UK has dropped

significantly, albeit this may be temporary as the Turing Scheme begins to take larger cohorts to facilitate pan-European exchange programmes

Impact of Covid-19

w The potential for uptick in the number of Covid- 19 cases identified

on campuses cases as the winter months draw in and new variant case numbers could push universities to revert to on-line forms of education, with a knock-on effect on PBSA. Nido has sought to preempt this, reflecting on the rise of hybrid university education, and was quick to embrace technology and adapt to an online offering. We were the first UK PBSA provider to produce a comprehensive virtual events programme, with over 18,000 views, as well as optimising an online bookings system, resident’s app for internal communications and offering online wellbeing support for residents

Market conditions

w The number of beds submitted for planning continues to exhibit

volatility as national planning activity rebalances, despite enquiries and forward bookings for PBSA picking up. This could create a ‘clogging’ effect as the pace of fresh planning permissions stalls, particularly as local planning authority Article 4 Directions come into force to further restrict development potential

w Associated delays in both site construction and lagging materials

supply chains continue to have an effect on development and refurbishment timescales, which widens an existing imbalance between demand and supply

w This cumulative effect of the aforementioned factors could provide an opportunity for HMOs to compete with PBSA

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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3. European markets Germany

Spain & Portugal

w Limitations apparent in Q1 2021, most notably the adverse effects

w There is a consistent demand from Latin American students for

w An emphasis on quality and ease of booking and the premium

w In depth analysis from QS reveals that Spain is a top 3 destination

of municipal Covid-19 lockdown restrictions, are easing. PBSA in Germany is less affected by these trends as the market for student accommodation is more domestic than in the UK these have among student populations in Germany is evidenced in Nido’s research, as 540/540 students surveyed in Germany would recommend Nido. Nido’s average satisfaction rating in Germany now sits at 4.6*/5*

w Demand for blended living or ‘co-living’ in Germany continues to

grow in key cities, as PBSA absorbs recent graduates and young professionals. Among Nido’s occupants, almost 20% fall into in this category

The Netherlands w The Dutch market continues to require additional supply of student

housing, seeking to satisfy burgeoning regional demand as campusbased teaching resumes

a Spanish or Portuguese university education. A combination of a common language and cultural similarities give Spanish and Portuguese universities a unique market for Latin American students for prospective students originating in Mexico, Columbia, Peru and Venezuela, while Portugal is a top 3 destination for students from Brazil

w Spain and Portugal remain extraordinarily undersupplied in modern

terms: in Barcelona and Madrid fewer than 5% and 5.7% of the student population have dedicated bed space respectively.

w Zonal planning laws foster an environment to rapidly meet this

prevailing demand, while retaining a form of hedge in the event that PBSA needs to flexibly adapt to emerging mixed use and co-living demands

European pipeline w Nido has a current pipeline of an additional 3,000+ beds for 2022 onwards in Ireland, Spain, The Netherlands, and Portugal

w Despite this, real estate investment volumes in the Netherlands were considerably lower in Q1 2021 (-66.8% compared to Q1 2020)

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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4. in depth: emerging themes Students Overwhelmingly Value the Campus Experience w The Covid-19 pandemic has underlined in a profound way how

central the campus experience is to students. Attempts by higher education providers to move to a more online model have been met with considerable hostility across the UK and European markets. Unique to the PBSA model is the ability to foster a campus experience, particularly relevant for international students seeking quality and reliability from their accommodation options

w Courtyards, common spaces and food courts can work to create

the campus experience which students continue to prize. Nido’s own research has shown that 85% of students still want to be based in the location of their studies despite Covid-19 and lockdowns, and almost two thirds of students would still consider moving even if their university of choice isn’t offering full-time face-to-face learning

w With universities looking to teach online, and with the unknown future development of Covid-19 (and other unexpected events which could continue to disrupt the higher education sector in its traditional format), PBSA accommodation with sociable amenities such as that offered by Nido can offer that highly-prized social and collegiate experience to young people who continue to view going away to university as a key rite of passage. The kind of high quality PBSA that Nido provides is far more than just a place to stay: it serves as the hub for the kind of formative experiences that young people now expect from their university experience

The Enduring Demand for Quality w International students, particularly postgraduate students, have

their own unique wants and needs from their accommodation. It’s therefore crucial that PBSA operators adapt to meet these bespoke demands with solutions tailored to giving international students peace of mind and a seamless transition into the best possible atmosphere for living and studying abroad. Those travelling between continents for study have fundamentally different requirements from domestic undergraduate students. They expect reliability, quality and availability of amenities – meaning studio rooms and flats, rather than the traditional undergraduate room format. A considerable body of research points towards PBSA as the preferred choice for international students - providers like Nido can provide unparalleled peace of mind to those crossing countries or continents to study

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

w The statistics behind the quality of Nido PBSA assets and resident

student satisfaction are clear. Of those surveyed, 83% rated their accommodation either “good” or “very good”, 91% of Nido students were happy with the level of communication throughout the pandemic and 84% were happy with the safety measures implemented at their Nido residences during Covid-19

w Nido offers private rooms within flats that offer shared kitchens

and living areas plus ample storage space and ensuite facilities. Given that many students staying in PBSA will be travelling far from home for their studies, potentially for the first time, it is important that PBSA developers consider providing a comprehensive range of room options and facilities, suiting different requirements

w On-the-ground support teams and 24-hour security reassure both

students and parents. Additionally, legal or guarantor concerns surrounding private rental in a foreign country are bypassed by simple upfront payment solutions. As an asset class, Nido leads the PBSA sector in offering a stable footing to those embarking on new adventures. Last year, the UK saw a 24% annual increase in undergraduate applications from China, and with overseas students 60% more likely to live in PBSA than domestic students, there is significant scope for future growth within this sector

Demographic Change: Changing Expectations Across Europe are Driving Student Housing Pressure w The market for PBSA is growing in both relative and absolute

terms, and the overall number of young people across key market populations has grown. In the UK, 40,000 more places in higher education will have to be created by 2035 simply to account for growth in the student demographic. Likewise 25,000 more places will have to created in Ireland by 2024 due to underlying demographic pressures, a 15 percent rise. In Spain alone there is forecast to be an 11 percent rise in the population of 18 to 24 year-olds between 2018 and 2025, and key Nido markets like Ireland are home to the youngest and most rapidly growing population in Europe

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4. In depth: emerging themes w In addition to an increase in the number of younger people, their expectations are also continuing to change across Nido’s operating markets: more so than ever, young people expect to go into university and higher education, and when they get there, they demand the vibrant campus atmosphere that is increasingly seen as a key milestone in the lives of young people. As the higher education sector emerges from Covid -19, a blend of secure quality accommodation with vibrant social spaces helps to build that campus experience which the universities may lack themselves. Nido and the wider PBSA concept helps to support the dream that many young people have of going away to university

w Nido has adapted its offering to meet different demands, evidenced

by the high percentage of Nido properties in Germany dedicated to co-living. The shifting expectations of young people has created a market for PBSA-style accommodation for young professionals in Germany as young people are comfortable in a culture of shared rented accommodation after concluding higher education. Nido predict their future split to increase from the current 20% co-living demographic

European Markets; International Scope or Students; Spanish and Portuguese-speaking Cross-Pollination Between Continents w As nine of the top ten Spanish-speaking universities are in Spain, the

opportunities for Spain as a hub for global educational migration are high, principally from Latin America. Portugal universities currently have 37,000 foreign students, many of which come from Portuguesespeaking countries. This number is only likely to grow as more students from Brazil and Africa target higher education

w Brexit uncertainty and the high cost of American universities has

resulted in Ireland emerging as a high-quality alternative for students who wish to study abroad in English, Nido’s Cork asset recently reached a milestone 100% occupancy, and three Nido assets are planned to be mobilised in Ireland by 2022

Decentralising the University Experience in Key Markets w A key trend to understand is the break up of previously highly-

centralised national markets for higher education across Europe. Nido’s key new developments, such as in Cork in Ireland or in Bremen and Stuttgart in Germany, look to address this decentralisation of higher education across Europe, as domestic and international students have begun to appreciate the universities of smaller urban centres and often their fashionable, revitalised social atmosphere

w The proliferation of high-quality higher education providers in what

were previously considered provincial towns is a key operational benefit to PBSA providers. Nido’s Curraheen Point Residence in Cork provides space for students from such diverse institutions as University College Cork, Munster Technological University, Cork College of Commerce, Griffith College Cork, St John’s Central College, and the Crawford College of Art and Design. The joy of PBSA as an asset class is allowing students of these diverse institutions to mix, collaborate and enjoy the student experience together in a secure, collegiate, cooperative environment.

w High demand from the domestic populations of Iberia alone would

be enough to make both countries an attractive market for building student housing with an eye on quality: current estimates of unmet demand in Spain is around 400,000 students. With the unique cultural and linguistic links of Spain and Portugal to the wider world, much like the UK and US as magnets for English-speaking study, the potential for growth in these markets is significant

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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Darren Gardner, COO of Nido:

further reading CBRE Netherlands Student Housing Review (2019)

“As we start the new academic year and a fresh start, it would be a missed opportunity to not constructively look at what we can learn from the past 18 months - both on an operational and investor level. By doing this, and acting upon regular feedback, Nido has excelled at effectively communicating with its audiences, which on an investor level can be demonstrated by our planned growth into Europe and on a consumer level, through our achieved occupancy targets.

CBRE Portugal Student Housing Review (2019) Cushman & Wakefield UK Student Accommodation Report (2021) Bulwiengesa & Union Investment German Student Housing Report (2019) HEPI UK Student Accommodation: The Facts Report (2020) Irish Government Higher Education Authority Report (2019) JLL Portugal Student Housing Report (2019)

Ensuring that Nido, as the leading European PBSA operator, can continue to provide safe and secure spaces for residents will allow us to continue to be world class. This can only be achieved through increased attention to detail on every touch point of the consumer experience from high specification on design to ongoing support, either online through our app or with the front of house offering. Providing this top-level asset class will not only benefit the consumer and lead to retained residents, but gives reassurance to our investors that Nido is the operator of choice for successful and healthy PBSA.”

JLL Spanish Student Housing Report (2018) Knight Frank Dublin Student Housing Report (2017) Savills Spotlight on UK Student Accommodation Report (2020) Savills Netherlands Student Housing Report (2019)

For further discussions on PBSA please contact Darren Gardner /COO of Nido, OR Brian Welsh / Head of Student at Round Hill Capital.

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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About Nido

disclaimer

Nido Student (“Nido”) is an award-winning international student accommodation operator. Attracting students from more than 100 different countries, across 150+ institutions, Nido currently has over 5,000+ beds in operation across the UK, Germany and Ireland. Its reputation as an insights-driven and customer focused business has led to the seamless expansion into Europe in the past two years. This growth will continue in 2022 with a further pipeline of 3,000+ beds in Ireland, Germany, Portugal, and Spain. With over a decade of experience and a firm focus on the wellbeing and experience of its residents, Nido is the global operator of choice for both students and investors. Further information www.nidostudent.com

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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. Further information on www.roundhillcapital.com

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Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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Nido House view PBSA Investment Market Outlook UK and Europe Q3 2021

Nido House View: PBSA Investment Market Outlook, UK and Europe - Q3 2021

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