Supply & Demand for Irish Student Accommodation Investment
If you’ve worked hard enough - and had some good luck along the way - you may have recently experienced a “liquidity event”. And those that have experienced a liquidity event may be in position to make a student accommodation investment.
To people in the wealth management community, a “liquidity event” is sudden availability of liquid funds. Your company may have recently gone public. Or maybe it was sold. Or perhaps your stock options matured.
Whatever the source of your liquidity event, if you’ve had one, you’re probably looking to place your new funds into investments that can grow and support you moving forward.
A well-balanced portfolio should consist of both traditional and “alternative” investments.
You’re familiar with “traditional” investments such as stocks, bonds, and currencies. You likely already own some of these traditional investments. However, a well-balanced portfolio should consist of both traditional and “alternative” investments.
Alternative investments, semantically and simply, are any type of investment beyond the traditional stocks, bonds, and cash. Alternative investments include commodities like corn or cotton, private credit, private equity, or real estate.
Real estate investment in Ireland has a long and storied history, though we probably do not think of real estate as an “alternative investment”. We certainly recognise real estate as a powerful vehicle for growing wealth. And as a means for owning and safeguarding a piece of this island.
Here we would like to introduce a sub-sector of real estate investing that you may not have considered: Student accommodation.
Student housing in Ireland is a strong and growing need - as our own student population grows, and as Ireland increases in popularity as a destination for international students. Especially in the wake of Brexit.
Through private off-market investments such as those offered by Elkstone, you may now have an opportunity to grow your wealth with an investment in student housing.
The investment community refers to student housing as “Purpose-Built Student Accommodation”, or PBSAs.
Traditionally we would have seen institutional investors as the ones to invest in alternatives like real estate, because of the large cheques they could write - and had to write - in order to get access to these types of investments. But we've seen a move toward democratizing access to alternative investments. Elkstone has been an Irish first mover in this trend through our Club."
Karl Rogers, Chief Investment Officer, Elkstone
PBSAs represent a powerful opportunity to place and grow your wealth, alongside, or in place of traditional investments such as stocks and bonds. Alternative investments such as PBSAs can provide diversification of your investment portfolio while offering the potential of enhanced returns. And through Elkstone’s myriad investment programmes, you can choose an investment level and risk level that suits your profile.
In this article you will learn:
What are Alternative Investments, and Why Should I Consider Them?
Why is a Student Accommodation Investment in Ireland a Strong Opportunity?
Why are Elkstone’s PBSA Investments Particularly Attractive?
What are Alternative Investments, and Why Should I Consider Them?
By definition, alternative investments are literally any investment that is not stocks, bonds or cash.
In practice, alternative investments include the following non-exhaustive list:
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such as corn, wheat, oil, gold, etc.
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(including Venture Capital), in which a group of investors place money into promising non-public companies
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in which a private organisation (rather than a bank) lends money to non-public companies
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in which are seeking to provide uncorrelated returns
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such as art, antiquities, cars or wine often referred to as passion assets
In general, there are two main reasons why people look to place funds in alternative investments:
Diversification
Strength of potential returns
What is Diversification and how does it help my portfolio?
Wealth managers often seek to employ and manage diversification in their clients portfolios.
Diversification generally has two upsides:
Diversification reduces risk of your overall portfolio
Diversification helps a portfolio navigate through unforeseen events in a smoother manner
Diversifying means adding unrelated investments within your portfolio. The goal is to achieve better risk-adjusted returns while maintaining your return target goal. Successful diversification enables both to be achieved.
Ideally, you want your investment portfolio to contain assets whose values respond differently to macroeconomic events. The world will continue to turn, and the world will continue to produce events that change the value of investments. The key is to have a portfolio of assets that retains its overall strength through different macroeconomic events and “shocks”. To achieve this, an investor requires a portfolio of assets that correlate differently, and respond differently, to the world’s economic changes.
For example, the value of gold has historically had a low correlation with the value of bonds. So if something happens that causes the value of bonds to decrease, the event should have very little impact on the value of gold. So if you own both bonds and gold, the total value of your portfolio is less negatively impacted through such an event, than a portfolio that consists 100% of bonds.
Do Alternative Investments help Diversify a Portfolio?
The simple answer is yes.
Karl Rogers: “many believe that alternative investments are more volatile and risker, but in fact the inclusion of alternative investments help reduce the risk of an overall portfolio"
According to Blackrock, alternative investments “rely less on market trends” and tend to react differently to macroeconomic events than stocks or bonds. This helps alternative investments chart courses that are independent of macroeconomic events, and thus independent of the movement of stock and bond markets.
Thus, alternative investments can help strengthen the overall value of your portfolio, and protect its value from macroeconomic shocks.
Do Alternative Investments offer the Potential for Outsized Gains?
Karl Rogers: “Alternative investments through private markets have historically brought in a positive return premium versus their public market equivalent across all of the asset classes whether that be equity, credit or real estate"
Certainly alternative investments offer the potential for outsized gains. Especially alternatives like private equity and hedge funds, which are managed by seasoned professionals. And real estate - especially when you’re talking about institutional real estate investors like Harrison Street or LaSalle, which have teams of professionals placing funds into large-scale residential real estate developments.
The difficulty for most people is that the entry price for a direct investments in private equity or institutional investment vehicles is out of reach.
Elkstone is able to provide a solution to this problem.
Elkstone is able to offer a limited group the opportunity to make a direct investment - often as a co-investor with an institutional investment house. Working with an institutional co-investor allows Elkstone to lower the threshold price for making an investment into a large-scale development such as student housing.
Why is a Student Accommodation Investment in Ireland a Strong Opportunity?
In the industry, student housing is referred to as “Purpose-Built Student Accommodation”, or PBSA.
You’d be forgiven if you’d never heard of PBSA, or if you’d never thought about making a student housing investment. But the PBSA market in Ireland is a strong and vibrantly growing sector.
There are 3 main reasons that PBSA is a strong investment in Ireland:
The student population in Ireland is growing
The supply of PBSA student housing in Ireland does not meet the demand
The housing shortage increases demand for student-only accommodation
Student Accommodation Investment - Ireland’s Student Population is Growing
“The size of the supply and demand gap helps determine the level of appetite for a project. There is a significant supply-demand gap in the Irish PBSA sector. PBSA has a much higher, much more reliable supply-demand gap than other sub-sectors making it desirable from an investment perspective”
Alex Walsh, Managing Director, Elkstone Real Estate
As the student population in Ireland grows, so does the need for student housing at universities.
The total population and the rate of attendance of third-level education are both growing in Ireland. Ireland’s population grew 8.1% between 2016 and 2022, and continues an upward trajectory.
As the population of Ireland grows, so does the percentage of the population that attends higher education. The rate of third-level education in 1994 was only 14% in Ireland. This attendance rate has grown to over 50% today, and continues to climb.
The combination of growing population and an increasing rate of participation leads to a growing student population - and they all need somewhere to live.
The growth of the student population in Ireland is augmented by another factor: The growth of international students in Ireland. Brexit has had an outsized impact on this.
After the UK’s departure from the EU, European students found it more difficult to enroll in British universities. More and more, these students discovered the benefits of Irish education. While international attendance at UK universities dropped 67% from 2020-2023, attendance at Irish universities grew. After a drop during COVID, Ireland saw a 10% increase in international student attendance from 2022-2023.
Regardless of the deciding factor - population growth, rate of higher ed attendance, or increased international students - attendance at Irish universities is growing. According to Cushman & Wakefield’s 2023 study, enrollment at Irish higher education institutes increased 18% between 2014 and 2023.
And the student population in Ireland is projected to continue to grow. The growth in the Irish student population will serve as the foundation for demand in PBSAs for years to come.
This growth in the student population is driving the demand side for the student accommodation investment in Ireland.
The Supply of PBSA Student Housing in Ireland Does Not Meet the Demand
As with all things, the investment opportunity in PBSA comes down to supply and demand.
As we see from the above section, the student population in Ireland continues to grow. However, the supply of student housing does not currently meet the need. The Irish Times sees the demand for student accommodation as “severe” in Ireland, with the current stock only providing 50% of demand.
According to Bonard, In the UK, for example, there are over 522,000 PBSA beds for their student population of more than 1.6 million. This means that there are about 4 students vying for each PBSA bed.
In Ireland, there are 6 students competing for each PBSA bed. This disparity in supply versus demand for PBSA will help drive the need for additional student housing in the future, especially as Ireland’s student population grows.
Ireland has a strong need for student housing overall, and according to Cushman & Wakefield, several locations across Ireland are “acutely undersupplied” with PBSAs.
“You can look at other countries and see that Ireland is underbuilt when it comes to PBSA vs. the demand for such accommodation. PBSA is a very mature market in other countries. Ireland is behind, trying to address this undersupply. In Ireland, the first PBSA was built by Elkstone only around 10 years ago, the concept is much older than that.”
Alex Walsh, Managing Director, Elkstone Real Estate
The Housing Shortage Increases Demand for Student-Only Accommodation
Ireland has been in the grips of a moderate to severe housing shortage for the past decade and beyond. The past decade in Ireland has seen increased growth of student populations, increased growth of immigration, and increased overall population growth. With the population growing at 3x the rate of housing stocks, supply is not meeting demand.
The result is a sustained increase in the levels of rent, especially in the larger cities. Across Ireland, rents increased 37% between 2016 and 2022.
The shortage in PBSA student housing is driving the demand side for a student accommodation investment in Ireland.
The end result is a 95% occupancy rate for PBSAs.
The effect this has been to drive students to seek out housing that is immune to competition from the general population. Purpose-built student housing is protected from rent increases and from competition from non-student populations.
“PBSAs provide students with safety, security, friendship and, in many cases, with supervision. Students with a group of friends can share a space in a PBSA, retaining their social ties while still keeping separate financial arrangements. Most PBSAs also come with their own common rooms, gyms, gardens, study rooms and more. Students are drawn to PBSA housing for the security, social aspects, and 15-minute city living - all provided in an all-in monthly rent.”
Alex Walsh, Managing Director Elkstone Real Estate
Why are Elkstone’s PBSA Investments Particularly Attractive?
Founded in 2011, Elkstone is Ireland’s leading alternative investment specialist, with focuses in real estate, venture capital and wealth management. Elkstone has been honing an expertise in the PBSA market since 2012, and manages PBSA development projects from development, letting, and investment hold.
See Stoneybatter Place for an example of the high quality, high sustainability student accommodation that Elkstone develops.
Elkstone is pioneering a model for student housing investment projects that allows private individuals to place their money in institutional-grade investments. The model allows investors to choose specific PBSA development projects, choose the development stage they want to invest in, and choose whether to invest in the debt side or the equity side of the deal. This allows investors to tailor their investments according to their own fund levels and risk preferences.
There are 3 main drivers of value in Elkstone’s student housing investment approach:
The potential to co-invest with an institutional investment partner
Elkstone allows you to tailor your investment to your risk preference
Elkstone’s PBSAs meet sustainability targets making them more attractive for acquisition
The Potential to Co-invest with an Institutional Investment Partner
Partnership with an institutional investment house is a key ingredient in Elkstone’s model for PBSA development.
Partnering with an institutional investor helps Elkstone lower the entry price for private individuals looking to invest in student housing, and then provides comfort to those private investors that they are making a sound investment.
For example, on the Stoneybatter Place PBSA project, Elkstone partnered with Harrison Street.
A private investor in an Elkstone PBSA development knows that the project has been through two rounds of due diligence from an institutional investor.
First, the institutional investor has deeply researched the Elkstone team, their expertise, and their track records, and determined Elkstone to be a worthy partner overall. Secondly, the institutional investor reviews the PBSA project on an individual basis - deeply researching the specific points of each development stage prior to green-lighting investment.
This due diligence on the part of the institutional investor can help provide Elkstone private clients take comfort that they are making a sound investment.
Elkstone Allows you to Tailor your Investment to your Risk Preference
There are 3 ways that Elkstone allows private investors to tailor their investments:
Investors can choose among different student accommodation investment projects
Investors can choose between 3 stages of the real estate life cycle to invest in
Investors can choose to invest in either the debt side or the equity side of a deal
The combination of these three factors provides investors with a dynamic for selecting the right investment for their level of funds, appetite for risk, and opportunity for returns.
When you invest with Elkstone on a student accommodation investment project, you are placing your funds in a specific development - not a portfolio of projects. This allows you to place your funds according to your own understanding of the community in which the project is meant to take part, the local economy, and the local real estate market.
Within each project, there are 3 phases to choose from for investment:
The planning stage
The construction stage
The asset stage
The planning stage typically lasts 3 years, and involves the acquisition of land and the finalisation of planning permissions. At the end of the planning stage, investors sell the project to the investors in the construction phase.
The development phase also typically lasts 3 years, during which all of the buildings and facilities involved with the project are built. The construction phase also includes a “stabilisation” phase in which the PBSA is filled with students and operates as a fully functional facility. After the stabilisation phase, the project is sold to in the market as an investment, in the Asset Management Stage.
The planning phase, having the furthest horizon, carries the largest risk. The asset stage carries the least. Elkstone PBSA investment returns match the risk of the stage, enabling investors to tailor their investments to their risk profile.
During the asset stage, the PBSA facility is managed and operated, and rental incomes are produced. During the asset stage, the project is available for purchase from third party investors.
Finally, for each PBSA project, at each stage of development, Elkstone enables investors to place their funds in either the debt side or the equity side of the project.
Debt investors in Elkstone’s PBSA projects receive returns in the form of interest payments, and then stand to receive their full principle back at the close of the stage. Elkstone is able to offer its debt investors strong rates of interest, especially given that the investments are asset-backed.
Debt owners can feel secure knowing that debt, being senior to equity, is paid back prior to equity, in the event of a sale.
Equity owners receive the benefit of capital appreciation over the course of their investment, and investors in the asset stage can benefit from rental income - after payment of interest in debt.
Between the choice for different PBSA projects, the choice of stage to invest in, and the choice between debt and equity, Elkstone investors have the opportunity to tailor their investment according to their own appetite for risk, and according to their investment goals.
Elkstone’s PBSAs meet Sustainability Targets making them More Attractive for Acquisition
An unusual aspect of Elkstone’s student accommodation investments that makes them especially likely to be acquired: Sustainability.
An unusual aspect of Elkstone’s student accommodation investments that makes them especially likely to be acquired: Sustainability.
An unusual aspect of Elkstone’s student accommodation investments that makes them especially likely to be acquired: Sustainability.
Institutional investors such as pension funds, insurance companies and investment funds are coming under increasing pressure to hold sustainable assets in their investment portfolios. And Elkstone designs their student housing projects to conform to the highest standards for sustainability.
During the construction phase, Elkstone follows Fitwel sustainable building practice standards. Elkstone aims to qualify for Ireland’s BREEAM efficiency standards as well as for an some of the highest BER ratings.
Elkstone’s PBSA projects will be increasingly attractive acquisition targets as laws around sustainability evolve. The European Green New Deal includes provisions that will require institutional investors to include sustainable projects in their investment portfolios. Elkstone PBSA projects are engineered to meet these sustainability requirements. The attractiveness of Elkstone’s PBSA projects will continue to grow as these EU mandates evolve.
“There are requirements these days for funds to have a quota of high-efficiency, low environmental impact projects. The PBSAs that Elkstone are developing are engineered to be very high efficiency and sustainable. This makes them more attractive to institutional investors that have to make quotas. In lieu of other older less sustainable assets, that in some cases are sold off to make room for the more efficient buildings. This makes our assets more attractive to investors over potential older competition.”
Alex Walsh, Managing Director, Elkstone Real Estate
Elkstone has Demonstrated Experience in Building, Managing & Selling PBSA Projects
Elkstone’s PBSA projects are divided into 3 stages - planning, construction, and asset stage.
Each stage lasts approximately 3 years, and at the end of the stage the investors in the stage have the option to exit as the project is sold to the next stage of investors. Until the final stage, when the asset is either sold on to a 3rd party, or continues to operate as a managed asset.
Since turning their focus onto PBSA in 2014, Elkstone has completed 5 PBSA projects. Two of these PBSA projects have been sold to 3rd parties. The 3 PBSAs still in the Elkstone portfolio are managed as assets, and continue to provide returns to investors. Debt investors continue to receive interest payments and equity investors continue to receive rental income.
Elkstone has honed a deep expertise in the planning, construction, management and selling of student accommodation investment projects. Elkstone understands the Irish student market, the Irish construction industry and the macroeconomic environment of Europe. A recently completed PBSA in Dublin opened for student booking and fully let within three month, prior to opening.
If you’ve recently experienced a liquidity event, talk to Elkstone about their PBSA alternative investment options.
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