High demand, low supply growth, rising rents and high occupancy rates make student accommodation one of the less risky buy to let investments at present, says a report from Savills Research.
But some potential property investors may find there is a limited availability of appropriate investment vehicles which risks frustrating attempts by individual investors to benefit from the sector.
'An underlying supply/demand imbalance points to a robust outlook for the sector, while the fundamental strengths of the business model mean that capital values have not fallen to the same degree as other commercial or residential real estate,' said Jacqui Daly, director of Savills Research.
Nationally, average rents for Purpose-Built Student Housing (PBSH) grew by 5% between 2007/8 and 2008/9, and 7% in London, the research shows. While private rented sector rents offer higher rental growth (+8% nationally and +10% in London), this is without the certainty of high occupancy rates.
Demand for PBSH shows no signs of falling and this will underpin future growth. Undergraduate student applications are up 9% for 2008/9, with growth in student numbers outpacing the new supply of accommodation by a factor of 10 nationally and 15 in London.
However the current financial climate, in particular the withdrawal of developer debt-funding, will limit the scope for investors to grow their interests. As a result, the past 12 months have seen consolidation of stock, with operator activity focused primarily on buying and selling existing stock from universities and private operators, as well as refurbishing old university stock, rather than organic growth through new developments.
As a result, and in the face of rising student rolls, demand will continue to rise particularly in London where planning constraints are severely limiting the ability of operators to grow their portfolios and increase the level of new supply in the market.
'The scope for individual investors to access this market is rather limited against a backdrop of constrained credit availability, particularly as lenders have tended very recently to tarnish student accommodation with the same brush as buy to let investments which have proven very much higher risk in the market downturn.
There are, however, investment vehicles, for example retail funds, which allow individual investors to invest indirectly in the sector,' explained Marcus Roberts, head of student housing at Savills.
