Skip to content

Consultants see student property sector growing in 2012 and beyond

Strong demand and undersupply will see student accommodation remain one of the UK's best property investments, according to the latest Student Property Report from Knight Frank.

This comes as new research from CBRE shows that nearly £840 million of capital was committed to investment and development in the student accommodation sector in 2011, more than double the £350 million allocated to the sector in the whole of 2009.

The Knight Frank report shows that total student accommodation returns almost doubled in London to 15.1% in September 2011, taking average total returns to 11.5%.

The report also examines the impact of the new tuition fee regime on the student property market, concluding that it will only strengthen demand for student accommodation at the best universities. It also highlights how UK universities are set to benefit from the rise in global student mobility.

‘The growth in the capital has been fuelled by the particularly robust performance of the core market, and more specifically, accommodation with rents of less than £220 a week. This is also the rent bracket where rooms were filled most quickly, signalling a strong depth of demand,’ said James Pullan, head of student property at Knight Frank.

Returns  in the regions moderated from 14.6% in September 2010 to 10.5% in September 2011. Outside London, Pullan says investment in towns which have more than one university with a high density of students can be the most lucrative.

The report also says that prestigious universities will benefit most from the introduction of tuition fees amid a flight to quality from students who will become increasingly discerning due to the capital outlay required to study.

‘The UK higher education sector is certainly facing challenges this year. The funding changes in respect of university tuition fees are dramatic. But the impact of the changes will be similar to a graduate tax, as students will not be required to pay back loans for tuition fees until they earn more than £21,000 a year,’ explained Pullan.

‘The winners from the new tuition fees regime will be the most prestigious universities amid a flight to quality as students search for the very best course available for their fees. The losers will be the least prestigious institutions offering commercially unattractive degrees,’ he added.

The report points out that education is an increasingly global marketplace. The number of students studying outside of their own country increased five fold between 1975 and 2008 and the figure is forecast to more than double by 2025.

The UK is well placed to take advantage of this trend having five universities which are ranked in the world's top 20 universities according to the QS University rankings, says Knight Frank. Overseas students have always had to pay fees to study in the UK and the weakness of the pound is cutting costs for them to study in the UK.

In a globally fluid and competitive higher education market the UK is perceived to a centre of excellence. That market is expanding rapidly alongside the corresponding demand for student accommodation.

Student accommodation has proved popular with investors attracted by the stable annual income and positive yield movements over the course of last year, according to CBRE. Its report says that rents have grown by 4% regionally and by nearly 5% in London in 2011 with occupancy rates currently at around 99% on average.

CBRE anticipates that rather than leading to an overall decline in student numbers, substantial increases in higher education fees will drive a shift in the type and composition of the student population. Overseas students will play an increasingly important role in UK higher education international student numbers anticipated to increase by an average of 3 to 6%.

‘Any uncertainty in the wider Higher Education market is not reflected in the accommodation sector and we expect the strong rental growth to continue next year. Student accommodation is more attractive than many other asset classes in the current climate and we have seen increasing interest from relatively new parties seeking to diversify their portfolios. While investor appetite will remain strong next year, it is narrowing its focus on well-located schemes that have long running agreements with good universities,’ said Jennet Siebrits, head of residential research, CBRE.

‘The private rented sector still houses the highest proportion of students at 27%, followed by institutional halls and students' families both of which house 19% of the population,’ he added.