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UK student accommodation investment expected to stay strong

The resilient sector provides a guaranteed long term income stream and is generating attractive yields of between 5.25% and 7.00% depending on location and the leasing agreement, the consultants have found.

Russell Group university towns and cities have traditionally attracted the most interest from developers and investors but with student numbers increasing by 4% last year alone, a substantial student accommodation shortfall exists across the country. For example in Brighton and Hove there are five full time students for every bed space, in Dundee there are seven and in Glasgow, nine.

Impending fee increases of up to £9,000 per annum are not anticipated to dampen demand, but instead place a marked emphasis on value for money and improved quality. Student accommodation will subsequently have an important role to play in the overall university experience and this could result in upward pressure on rents.

‘The majority of students are likely to react to the impending fee increases by taking out larger living loans or digging deeper into parental pockets. As a result, students will become more discerning and expect higher standards, more choice and a better overall university experience. Students will demand high quality accommodation, a good service led approach from operators and ideally an all inclusive rent,’ said Jennet Siebrits, head of Residential Research, CB Richard Ellis.

‘Private developers will be relied upon to plug this gap, as universities will have very little capital to do so themselves. This means there will be more opportunities for developers to work closely with the institutions going forward, which will also prove helpful in the planning process,’ she explained.

‘Assets that either have an existing arrangement with a university or have conservatively priced rents if they are let directly will be most attractive to investors as they provide the best security. This headroom is as much about building in income security, as the potential for rental growth,’ she added.

Siebrits pointed out that the historic double digit rental growth that the sector has enjoyed over the last decade may now be more muted but the market is expected to stay strong. ‘Across the country, we expect rental growth inline with inflation, but this might be higher in some key cities. The student housing sector should still outperform most other property sectors by some margin,’ she added.

Read more about the student accommodation sector in this month’s Property Wire Confidential magazine.