Real Estate

Goldman Sachs: Manchester's new landlord


On the edge of a faded university campus in central Manchester, a stone’s throw from the station linking the city to London, a sixties tower block will soon be demolished.

Previously Chandos Hall, a white structure that overlooks an old railway viaduct, provided student accommodation. It will be replaced with something similar, but most of the people living there will no longer be students.

In the planned “co-living” development, tenants will have their own bedrooms but share communal spaces. Manchester is joining a real estate trend that emerged in New York and San Francisco, North American cities with limited space and unending flows of young people. In the UK, the only precedent is London, where The Collective opened in 2016, and is now expanding to Canary Wharf.

The co-living approach is a controversial private-sector response to a perceived crisis of rental affordability in urban centres. Proponents say it responds to the lifestyle demands of millennials who prefer to live centrally and rent flexibly. Critics decry it as the “corporate answer to flatsharing”, claiming the rooms are overpriced and too small.

Whatever your view, the trend is striking evidence of a push from some of the world’s most powerful financial players into the urban landlord business. The company behind Manchester’s first co-living development is iQ Student Accommodation which is majority owned by Goldman Sachs. The Wellcome Trust, a medical research charity, and Greystar, an American property developer, also own stakes.

The rental market is one alternative to bond markets, where yields have turned negative over recent years. Money has flowed into commoditised areas of property, like student accommodation, partly on the back of demand from institutional investors in the US.

The creation of a student accommodation asset class is important because it is now feeding into an institutional transformation of much larger markets: those for graduate and inner-city accommodation. Co-living is a part of this, alongside the bigger build-to-rent push (earlier this year, Goldman made its first move into that sector, in Birmingham).

Next to Chandos Hall, iQ already owns student accommodation buildings. Across the UK, it has a portfolio of 23,900 beds across 56 sites, as of late 2017. The new development will include some student accommodation. According to an in-depth document from iQ introducing the plan in 2017, co-living has many similarities to purpose-built student accommodation: it is “professionally managed”, involves “shared amenities”, “all-inclusive rents” and a “community feel”.

It is clear the approach owes a lot not only to student accommodation, but also to the habits and migratory patterns of graduates. The document spells out who the development targets:

recent graduates and young professionals who wish to live in modern, high quality, professionally managed accommodation in the centre of vibrant, international cities. This group is otherwise unable to afford to rent an apartment of their own and do not wish to live in shared suburban accommodation (largely HMO’s). As explained later, their gross salaries typically fall in the £20,000 to £39,000 p.a. income bracket

It then goes on to assess the average rents in Manchester, where the rental prices have increased 75 per cent in the ten years to late 2017. Over that decade, it added 26,746 renters. Graduates, it adds, start on an average salary of £21,500 [as of late 2017].

Co-living is one response to an age of dense, urban living. Institutions, eager for reliable cashflows, are now competing with a market once dominated by amateur landlords. It’s one thing to follow the money, but the money is usually following people. Manchester is a story of migration, inimitably linked to the incentives and structures of an education industry.

Meanwhile, the university was at the Mipim propery conference in Cannes this year, looking for a partner to transform the old university campus next to the development into a £1.5bn innovation district. You can read our long article on that here. We’ll leave you with a quote from Charlie Ball, who studies graduate employment data for a living:

“To an extent, Manchester operates in the North West like London does in England,” he told us.

Related links:
The Manchester model – Financial Times

Why US investors are betting on student accommodation
– FT Alphaville
A solution to the housing crisis? – FT Alphaville


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