Student Property Market

Elena Rustici

"With so many serious institutional buyers and operators entering the market, UK student housing is arguably the most advanced of 'alternative' sectors."
CBRE, November 2014

Investment into the UK’s student housing market hit £3.98 billion in the first half of 2015, well ahead of the £2.35 billion for the whole of 2014, the latest data show. These impressive figures confirm the amazing upward trajectory the sector has experienced over the past few years.

2015 CBRE data (as above) show that London saw the majority of investments with £1.98 billion worth of transactions over the first 6 months of the year. The numbers from the capital are representative of investors that see student accommodation as a way to gain entry to the London private rented sector, with the added bonus of yields more attractive than any other residential stock.

Average NET Rental Growth

Year to Sept 2011 Year to Sept 2012 Year to Sept 2013 Year to Sept 2014
Regional Towns 3.58% 2.9% 3.21% 2.15%
London 14.18% 6.43% 0.60% 1.18%
National Average 4.26% 3.39% 2.69% 2.25%

Although the main transaction for 2014 and the beginning of 2015 are reported as being mainly London-based, rental growth for purpose-built student accommodation has grown throughout the UK, demonstrating a strong performance and an extraordinary resilience for the sector.

This growth goes to show that in terms of investment location, the market saw a move away from buyers solely considering investing in London, and regional investment in student property became more appealing due to increasing opportunities, greater rental prospects and appreciably higher yields.

Ever-Growing UK Student Numbers

The most recent UCAS Reports provide detailed and extremely positive insights into the current UK student numbers. Figures confirm an unprecedented shift towards higher education, with more people than ever considering going to university. It is confirmed that at least 499,730 new undergraduates applied for a higher education course for the 2014/2015 year.

The relaxation of the cap on student numbers by an additional 30,000 people for the 2014/15 academic year, announced by George Osborne in December 2013 will have definitely contributed to the annual increase in applications. And in the next 2015/16 academic year when the cap will be removed completely, we will see universities take on as many students as they wish and the oevrall number of students in the UK increase again.

University Demand Rises

The data confirm that enthusiasm for a university education had only been mildly diminished by the 2012 rise in tuition fees to £9,000 per annum, when student numbers took a slight downward turn. In fact, the increases in tuition fees have not deterred as many students as expected: students are still relying on higher education for entry into the working world and the availability of progressive repayment systems continues to make higher education accessible for a greater portion of the population.

The international student population in the UK is also steadily growing. According to UCAS, the number of 'Other EU' students entering the system has grown from 15,450 in 2004 to 26,070 in 2014. New Non-EU entrants have grown from 28,875 in 2004 to 38,230 in 2014.

Overall this is a 57% increase in overseas entrants since 2004 and The British Council has predicted 30,000 additional international students will be studying in the UK by 2020. According to GVA, students from China and Hong Kong account for a third of all non-EU overseas students. The total number of Chinese students rose by 78% since 2009.

Overseas students have an important role to play for higher education. British universities are competing in a global market for the best talent and higher overseas student numbers reflect the quality of UK institutions. From an accommodation perspective, this growth of international students, especially from the Far East, generating greater rental demand for purpose-built student property, as their budgets are less price-conscious and they are attracted to the hassle-free nature of purpose-built accommodation.

From the perspective of an investor, this will ensure thriving prospects for the future of new-build student property.

Supply Not Meeting Demand

While applications and student numbers keep growing, the market is far from providing the expected supply of accommodation, and university cities continue to experience unrivaled levels of demand for student beds.

As reported by BBC in November 2014 "Students at some universities are having to share single rooms" and that "Thousands of extra places, offered this year, have meant some universities have been unable to house all their first-year students in halls of residence."

The majority of this student number growth has been absorbed by the private rented sector. But the strict HMO regulations put in place affecting more and more city councils, are now forcing a gradual migration of students back towards purpose-built accommodation.

Term Time Accommodation, 2007/2008 vs 2012/2013

Source: HESA - 2012/2013

The student property market, which has already benefited from the ever-growing student numbers, could also potentially unlock around 66,000 homes back into the residential market across England and Wales, and a further 11,000 in Scotland. For this reason that developers and investors wishing to profit from this market make sure that the local community rightly perceives new developments. Purpose-built student accommodation can not only be seen as a solution to the lack of stock in the housing market but also as the perfect way to minimise issues such as noise pollution, anti-social behavior and lack of car-parking spaces.

The imbalance between this ever-growing demand and the chronic undersupply of student beds will continue to create a sturdy platform for investors looking for the security of high occupancy and competitive rental income.

Want to know more or discuss this further?

One of our dedicated student property consultants will be in touch as soon as possible!

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