Deep Dive: Looking to education and social housing

The landscape for traditional real estate assets has become uncertain, so it is vital to look at alternative sectors of the market, notably student accommodation and social housing.

Within traditional real estate, retail units (mostly on the high street) and leisure complexes (such as cinemas, gyms and restaurants) have seen underlying structural stressors, which predated the pandemic, exacerbated significantly. When viewed in conjunction with the material uncertainty around future demand for office space it is clear that there is merit for commercial real estate investors to expand their remit to include exposure to ‘alternative real estate assets’ to a greater extent.

A traditional definition, at a portfolio level, would be investments that offer a diversified return stream which exhibits a lower degree of correlation to traditional asset classes, predominantly equities and bonds). The result is more diversification across differing drivers of return, improving the overall risk and return characteristics of a portfolio. 

Focusing on real estate assets in particular, these same principles apply and investors seeking alternatives to their traditional commercial real estate portfolios might look to include ‘novel’ assets which exhibit an attractive yield and lower correlation (from a risk and return perspective) compared to their current holdings. Two notable groups of assets that fit this profile can be thematically collected around education and health/social housing.

Education (specifically higher education at the level of undergraduate studies and above) is already a major export for the UK. The world’s largest commercial real estate services company, CBRE’s statistics point to a sustained growth in the number of international students choosing the UK as their education destination over the preceding decade and, despite some reductions seen in the number of EU applicants for the 2021/2022 academic year, the UK Government has published a commitment to increasing the number of international students studying in the UK to 600,000 by 2030, which would itself see the value of UK education exports valued at £35bn per annum. 

Looking to domestic students, there is expected to be a healthy degree of competition between London, seeking to re-affirm its position as a global hub of higher education, and the rest of the UK, where programmes to both level-up regions and combat the ‘brain-drain’ to London are being discussed. Overall, the education real estate landscape points to one of many robust efforts to grow and modernise higher education offerings across the UK and a healthy demand for large-scale student accommodation sites in support of such.

Health and social housing, and the demand for real estate investment to facilitate each, can be explained by two main factors: an increasingly ageing population (for the former); and a recognition of historic systemic underfunding (for the latter). The notion of an ageing population has been obvious for some time and associated stresses building on the healthcare system, and magnified by the Covid-19 pandemic, have pointed to a discussion around not just the limited quantity of facilities, particularly for assisted living, but also the poor quality of stock. In August 2021, The British Geriatric Society published a series of recommendations around the need to enhance healthcare services, particularly relating to the use of digital technology and IT infrastructure across care homes and highlighted the fact that current stock is often over 40 years old and so in need of rejuvenation. 

Social housing, most commonly explained as subsidied accommodation for low-income households, has seen sustained falls in levels of government funding and the majority of construction since the 1990s has been driven by private and third-sector investment, a trend which is expected to continue over the medium term. It is clear that future demand is expected to remain strong for health and social housing facilities and that both asset construction and modernisation is required.

Underpinning both of the themes of education and social housing is the notion of strong growth prospects driven by expected demographic changes and sustained population growth. Time will tell the extent to which these changes evolve and investments organised around them convey the return and diversifying benefits envisaged.

Amanda Burdge is a partner at Quantum Advisory

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