UK student property is the strongest investment platform today, surpassing other traditional real estate classes. In 2015, the UK student property sector saw investments to the tune of £6 billion – twice the amount invested in the sector in 2013 and 2014 combined. Experts say the sector is likely to see more investment in the years ahead.
UK Student Property
Formerly reserved for institutional investors, UK student property has become one of the most popular investment vehicles to date in the world of property investment. From a mere £500 million in 2010, direct investments in the sector reached £6 billion in 2015, surpassing the £3 billion in 2013 and 2014 combined. More significantly, this marks an increase of more than 300% over the £1.7 billion invested in 2014 alone.
Is Growth in the Sector Set to Continue?
The answer is yes.
The fact remains that there is still an acute under supply of purpose built student accommodation (PBSA) in the UK due to restrictions in building permissions, a challenging planning environment and the government’s support for housing development. Meanwhile, the number of foreign students continues to rise due to recently abolished restrictions in foreign student numbers, which comprise the traditional mix of new first year students and second- and third-year returners.
To illustrate, the number of foreign students at Britain’s top universities doubled between the 2005/2006 and 2013/2014 academic years. These students tend to come from wealthy families who are able to afford the soaring cost of tuition for non-European Union residents and demand a high-class standard of living. The Higher Education Statistics Agency reported that the number of residents living in private halls more than doubled between 2007 and 2014—from 46,000 to 102,000—a trend predicted to continue. The dramatic upswing has been fuelled by the inability of university-managed accommodation to keep pace with student numbers.
London’s full time student population alone is expected to rise by 50% in the next 10 years, whilst student cities, particularly where there is a Russell Group university, is expected to see dramatic increases in student numbers. EU and non-EU students are the fastest growing segment, bringing a net benefit of £2.3 billion per annum to London’s economy supporting 60,000 jobs in the capital.
But, beyond the fundamentally undersupplied market, one reason for the success of PBSAs is that students have become more discerning, especially in light of increased tuition fees. Unite Group reports that 85 per cent of second year undergraduates are now looking for quality, purpose-built student homes that fulfill all their needs (including peace and quiet and access to night life), and with the CBRE statistics showing that student accommodation generally has occupancy rates of some 99%, it’s easy to see why people put their money into this area of the market.
The structural undersupply in purpose built UK student property has caused prices to skyrocket. Student housing charity Unipol, for example, reported a rent rise of 25% in purpose-built student accommodation between 2010 and 2013 – nearly double the rise in the rental sector as a whole in that period (13%).
Experts predict that student housing will experience a continued strong demand but with significant supply side challenges in London and key student towns. With this demand from students for more luxurious space, coupled with rising student numbers and strained supply, there is certainly potential for all sorts of investors to get top marks for their shareholders and earn strong income and profits from the sector.
Ultimately it’s not just about what you invest in; it’s also where you invest in. In a recent report in the Property Wire, several student cities were highlighted as the next investment hotspot including Manchester, Liverpool, Birmingham and Brighton. Looking ahead, it is also likely that London will continue to be an attractive city for students from across the UK and around the world. However, there is the risk that prospective students will be put off by the cost of living in the capital (house prices have risen by 46% and private sector rents by 19% over the last five years according to the ONS).
‘So long as demand outstrips supply, upward pressure on both rents and capital values will continue to make the market an attractive proposition for investors, and we don’t expect the market to come off the boil for some time,’ says CBRE head of student housing advisory Jo Winchester.
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