Student housing segment to see consolidation if virus pandemic continues: Report

With virtual classrooms becoming the new normal, student living, the emerging real estate asset class, is expected to witness a consolidation with smaller players exiting the business if the COVID-19 pandemic continues, a report by EY said. According to the advisory firm, in the last three years, the student housing segment has witnessed significant investments with around USD 600 million being already committed. The coronavirus pandemic has not just impacted the economic activities but also disrupted the education system with virtual classrooms and distance learning emerging as alternate technology-driven learning methods. The sudden switch is not only limited to private schools, as even some government schools have started running smart classes. "In case, the spread of COVID-19 continues for a longer time frame, the real estate prices, or rent for facilities, may undergo decline by 20-25 per cent in the next few months and operators with a longer-term view can look to lock in these rentals. The sector may consolidate in the next few months, with some smaller student living operators exiting," EY said. It added that only stronger operators with sustainable financial and operational models will be able to sustain in this COVID-19 scenario. The agency noted that investment in the student living asset class was driven by market potential of around 40 million students and a demand-supply gap with only 20 per cent students getting a hostel bed in universities, along with relative stability of cash flows and higher yields. Rental yields for student housing operators and aggregators were at 10-15 per cent as against yields of 8-10 per cent for commercial office assets

Also, risks were lower since education was considered recession-proof and low churn rates made for steady cash flows. "The current COVID situation has resulted in major changes affecting all four stakeholders including the colleges, educational institutions, students, asset owners, and the student housing providers and managers. "Though the closure had happened at almost the point when students were scheduled to leave for vacations, the revenue impact for the operators was lower," it said. However, the operators may lose out on 3-4 months of revenue due to the delay in commencement of academic sessions. "Some costs will also increase since there will be greater pressure on sanitation and cleanliness. If students decide to practice social distancing or operators offer it as a differentiator, they may also see lower occupancy," EY noted. EY India Partner, Transaction Advisory Services - Real Estate, Sailesh Rao, noted that the coronavirus crisis has also upended many assumptions about the form, structure, and depth of partnership between asset owners, operators, and users. "Most stakeholders have accepted the need for greater flexibility which will help put the sector on a sounder footing as we go beyond the pandemic," he added.