Blackstone deal: why student housing is attracting record investment

US-based private equity group Blackstone has agreed to buy IQ Student Accommodation, which is owned by Goldman Sachs, for £4.7bn in one of the UK’s largest ever private property transactions.

The deal for IQ, which is also partially owned by the Wellcome Trust, represents a bet on the UK’s rapidly growing student housing market, after Prime Minister Boris Johnson’s government announced last year its aim to grow the number of international students in the country by a third.

IQ is one of the UK’s largest owners of student housing, with 67 student premises housing more than 28,000 beds in 27 major university cities, including London (where over half the portfolio is concentrated), Edinburgh, Manchester, Leeds, Birmingham and Dundee.

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“The UK is extremely well positioned from a global perspective in terms of the sheer number of higher education establishments,” said Blackstone’s head of European real estate, James Seppala. “The growth internationally in demand for UK higher education is coming from all over the world.”

Blackstone has taken note of the soaring demand for places at UK universities. Admissions service Ucas says that more than 706,000 students applied for a full-time undergraduate position in the UK for the 2019/20, an annual increase of 10,800, precipitated by record numbers of foreign applicants.

“The number of full-time students in the UK has reached a record level,” The Guardian says. “This is projected to grow by a further 461,000 by 2030 to more than 2.2 million, with international students expected to make up 45% of the total.”

Demand for beds at UK universities is currently outstripping supply by 30%, meaning increased rents; and with student numbers on the up, this trend is showing no sign of stopping.

“UK revenue from international students and other education-related services totaled about £21.4 billion in 2017, the bulk of which was generated by higher education,” reports The Wall Street Journal, citing a 2019 report from the UK Department for Education. “The total was up 7.2% from the prior year and had gained 34.7% since 2010.”

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IQ already ran accomodation at the high-end of the market, with rents running from £195 to £460 per week in London, but Blackstone is planning to refurbish and even rebuild many of its new assets.

Blackstone was not the only investor to take an interest in IQ. “Two other firms had also bid for the company,” a person familiar with the negotiations told the Financial Times. “IQ had also considered an IPO but decided the price and certainty of a sale process made it a better option.”

Rob Roger, IQ’s chief executive, said he was looking forward to “working with a partner of Blackstone’s calibre, as we continue to deliver our ambitious growth plans”. He added: “With student numbers in the UK at an all-time high, and growth set to continue in the coming years, there has never been a more exciting time to be a leading player in the student accommodation sector.”