Alternatives within the Real Estate sector have held up better than expected with good occupancy levels and strong institutional investor demand underpinning them through challenging times.  It was interesting to listen to Knight Frank in their Digital Webinar Commercial Conversations - The beds update, this morning providing their analysis and cautiously optimistic outlook for the sector.

It was encouraging to hear that demand has held up well in student accommodation, despite the fears of a drop off in take up due to the pandemic. Research shows occupancy rates of 70-85% and a 3.5% rise in students looking for accommodation when compared with the previous year. Universities and operators have played a key role in reassuring students that they can safely study and attend universities and that appropriate safety precautions such as social distancing will be in place for both their studying and living environment. 

This chimes with other views we have seen in the debt market with lender sentiment towards student accommodation remaining broadly positive.  In August a leading UK bank provided acquisition finance for two schemes in Bristol and this month another major Real Estate lender has agreed to finance the development of 888 student beds across Sheffield, Glasgow and Edinburgh. The coming academic year will be critical in determining whether appetite remains strong, but experienced sponsors and the ability for such players to adapt and respond to changing market conditions will be paramount.

The speakers noted that the residential sector has seen the strongest growth with a 54% increase in demand against the 5 year average. The residential sector is also likely to see the biggest change in tenant appetite with the focus on adaptable living space/working space and the need for schemes to foster communities. Consequently, operators and developers who are able to respond quickly to the changing demands have been, and will continue to be, successful. Professionally managed BTR schemes have fared well with research showing that for the 5 months from March to July rent collection levels were at over 95%.  This demonstrates that even in times of economic uncertainty the flexibility of renting is appealing to occupiers.

Senior living supply, as highlighted by the speakers, continues to expand with around 8,000-9,000 additional units per annum, underpinned by strong demographics, historical under supply and increasing price growth. The outperformance of the senior living assets in the sector has driven increased interest among institutional investors such as L&G, AXA and Goldman Sachs.