I’m the Head of Valuations for Southern Europe at JLL. I am responsible for the valuations of Italy, Portugal, and Spain. We value all kinds of asset classes. PBSA is one of them, of course, and we have a specialist in the different classes because the real estate work has become more complex and requires specialization, particularly those assets with an operation behind them. Real estate has become very complex and is an exciting topic.
On the operations side, the performance of PBSA is excellent. The rents are indexed to inflation and are growing, with room for growth across the Iberian region, and it’s even better now than in pre-COVID times. Cash flow produced regularly is also very appealing to investors.
European Governments Support the Education System:
There are other reasons why PBSA is still attractive: Even during the downturns, governments support a solid education. That’s also something we’ve seen during the COVID period, even during the last financial crisis. It’s still a sector that the governments will support and where there is much appetite from across the student community, where Spain and Portugal are among the top 10 cities more appealing to international students. It’s still a place to invest.
You can offset inflation by increasing rates every year. Then, regarding the rising interest rates, banks in Iberia are still willing to finance the student housing projects if a solid operator backs up the project.
Impact of interest rate increases:
The cost of debt has indeed increased in the last few years, and it will affect certain specific players, so high-interest rates translate into tighter returns for investors, which translates into lower prices.
We will see that some owners suffer and may enter an event of default.
The banks are still willing to finance student housing projects. There will be certain players that will suffer from these high-interest rates. However, as opportunistic investors, we see that more as an opportunity to consolidate rather than a challenge.
It’s true that with the current situation with interest rates increasing, it is more challenging to go ahead with the transactions from the investment perspective because there is still the price discovery. When there are downturns, there are also opportunities.
Appetite for PBSA has not declined, but the volume of investment declined in 2023:
Investment volume has decreased more than 50% compared to last year’s first half, but there is an appetite for PBSA.
Everything takes longer now, but transactions will come back.
– Silvia Damiano, Head of Valuations – Southern Europe, JLL, recorded at SHURE Initiative Europe Emerging Markets, 10 October 2023 in Zurich.