Morgan Stanley sees UK student housing boom as bright spot in Europe

Investing.com -- Morgan Stanley has turned the spotlight on student housing as one of the most resilient areas of Europe’s property sector, naming Unite Group (LON:UTG) as its new top pick. 

The brokerage said demand for student accommodation in the United Kingdom is set to strengthen as tighter immigration rules in the United States, Canada and Australia push more international students toward British universities.

Unite, the UK’s largest purpose-built student housing operator, is positioned to benefit from the shift. 

According to UCAS data, undergraduate acceptances for the 2025/26 academic year are up 3% compared with last year, with non-EU international students rising 5%. 

These trends, combined with limited new supply, are expected to sustain rental growth above 4% for longer, compared with the 3-4% modeled by consensus. Unite has guided to like-for-like rental growth of 4-5% and occupancy above 97%.

Despite these fundamentals, Unite’s shares have underperformed, closing at 709p on Aug. 28, near decade lows and significantly below Morgan Stanley’s price target of 1,000p. 

The brokerage said the derating reflected slower booking progress this summer, though it attributes that mainly to students delaying reservations after some operators offered late-cycle discounts in the prior year.

Unite’s financials underline the resilience of the sector. The company reported net asset value per share of 972p in 2024, with Morgan Stanley estimating 1,034p for 2025 and 1,226p by 2027.

Earnings per share are forecast to rise from 46.6p in 2024 to 52.5p in 2027, while dividends are projected to climb from 37.3p to 41.9p over the same period. 

Leverage remains moderate, with net debt to EBITDA expected at 6.7x in 2025 and an EPRA loan-to-value ratio of 26%.

The brokerage also flagged Unite’s pending acquisition of Empiric Student Property.

If approved, the deal would expand Unite’s portfolio of 67,729 beds by about 7,700 and increase its exposure to international students to 32% of the tenant base, postgraduate students to 19%, and high-tariff universities to 69%. 

Morgan Stanley said the transaction should be earnings neutral in the first year and accretive from the second year as synergies are realized.

Morgan Stanley said Unite combines scale, exposure to the strongest demand pools and a compelling valuation backdrop. 

“Student accommodation in Europe offers a great narrative,” the brokerage said, citing the pull of international enrollment and limited supply, and maintained its “overweight” rating with a 41% implied upside from current levels.