"We expect investment volumes to reach £5.3bn in 2017 as investor confidence returns after the EU referendum. This is a 17% increase on 2016." Savills, May 2017
Investment into the UK’s student housing market hit £4.5 billion in 2016, the latest data from Savills show. The performance was slightly below the record set in 2015, however the volume traded in 2016 was still 54% higher than the average of the past 5 years. These impressive figures confirm the amazing upward trajectory the sector has experienced over the past few years.
Knight Frank estimates purpose-built student housing is worth £46bn. 2016 has seen UK student accommodation continue to develop into a global investment market. International investors now own around 64% of the market, compared to just 35% in 2015, Savills found, showing that demand to invest in these types of properties has boomed in recent years.
The average rent for student accommodation in the UK can vary by as much as £429 per week depending on location (with London and the South leading the way, while more affordable accommodation is to be found in the North and Wales) and type of accommodation (Property Wire, September 2017)
Rental growth for purpose-built student accommodation has grown year on year throughout the UK, demonstrating a strong performance and an extraordinary resilience for the sector.
Private halls of residence are on average 90% more expensive across the UK than Houses of Multiple Occupancy (HMOs) and overall prices have increased in the majority of university cities, according to Accommodation for Students. Yet the number of PBSA has soared over the last few years, with 287 new developments opening in 2017 (Telegraph, September 2017), and headline rental growth for purpose built student accommodation increased by 2.55% for the 2017/18 academic year, according to Knight Frank’s Student Property Index.
Despite the higher rents, the volume of students living in PBSA has doubled over the last 10 years. This is due to a clear shift in student living trends. If once the main criterion for selecting a place to live was money, pushing the student population to live in low rent HMOs, there is now a definite difference in the expectations of university students. While perceiving the burden of increased financial debt, caused by the higher tuition fees, students have started to expect a standard of accommodation that provides more value for money. These "consumer students" tend to be more independent and focused on study, with a preference for their own personal space and to live in an environment that will support their chances of successfully obtaining their degree. High-quality accommodation is seen as extremely important in achieving students' education goals
The data confirm students are still relying on higher education for entry into the working world despite the high tuition fees, with the availability of progressive repayment systems making it accessible for a greater portion of the population.
The most recent HESA figures confirm a recurring interest towards higher education, with more people than ever considering going to university. The total number of higher education enrolments at UK's universities stood at 2,280,830 in 2015/16, an increase of 0.7% from 2014/15.
The statistics made available by UCAS at the start of September 2017 show only a small year-on-year decrease of 1% in the number of applicants receiving places at university. The number of placed applicants for 2017 as at 1st September was 493,860. This is roughly in line with 2015 levels, and ahead of the five-year historic average of around 485,000.
In October 2017, it was announced by PM Theresa May that the government is to freeze undergraduate tuition fees at £9,250 a year in England, and to undertake a review of student funding to look at long-term issues, such as a return to maintenance grants and varying tuition fees for courses. This is definitely good news for investors, who will find student numbers possibly growing at a higher rate, meaning their investments is safe.
The international student population in the UK is also steadily growing. According to HESA for the 2015/2016 academic year, although a large proportion of students studying in the UK were domiciled in the UK before they entered higher education (80.8%), 5.6% were from other countries within the European Union (EU) and 13.6% were from countries outside the EU.
A report by UCAS from September 2017 shows that the number of placed applicants from the EU (excluding the UK) has dropped 3% since 2016 which may be linked to wider impact of the ongoing Brexit negotiations. However, the 29,170 placed applicants from the EU as at 1st September 2017 is considerably above historic levels, with figures in 2013 for example of just 23,040. Interestingly the small decrease in EU placed applicants for 2017 has been mitigated by the increase in non-EU students where the number of students have increased by 3% on 2016 levels.
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.
While applications and student numbers keep growing, the market is far from providing the expected supply of accommodation, and university cities continue to experience unrivalled levels of demand for student beds. 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.
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 behaviour 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.
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