New research shows surge in student housing investment in the UK

There has been a huge surge in student housing investment activity in the UK over the last two years, according to a new analysis paper from Savills.

There was £5 billion worth of standing stock and development sites sold in 2012 and 2013, and the early signs for 2014 suggest there will be similar high levels of investment activity this year.

Indeed, the latest data shows that in the first four months of the year, there have been transactions worth £950 million and this equates to over 17,000 beds, above the level seen in the same period of 2013 and well above previous years including 2012.

The report points out that with a further £1.4 billion worth of investments on the market Savills expects to see activity in the region of £2.5 billion by the year end.

According to Yolande Barnes, Savills director of world research, the lower volume of investment activity in 2013 relative to 2012, some 33% less compared to only 18% fewer beds traded reflects an important trend. She also pointed out that 2013 saw a substantial increase in the number of deals in prime regional markets which were up 76%.

‘This trend is likely to continue given the attractiveness of the student housing sector to investors, although investors will have to bear in mind some of the risks,’ she said.

‘We saw some compression of blended average yields in the sector over the last year, with average initial yields falling slightly to 6.2% compared with 6.3% previously. This reflects the increased competition for investments in prime London and super prime regional markets,’ explained Barnes.

‘Although activity in prime and secondary regional markets increased by 80% last year, yields remained relatively static reflecting the riskier profile of student demand in these markets,’ she said.

‘For 2014, we are forecasting total returns of 13.7%. This is comprised of average blended yields compressing to 6.0% and rental growth of 3.5%,’ she added.

The report points out that the introduction of university fees for UK domiciled undergraduates has led to falling student numbers in the 2012/2013 academic year. However, UCAS application data suggests that numbers are recovering, but a close look at the figures shows evidence of a flight to quality emerging.

It also points out that there is a lack of certainty over the position of tuition fees in the event of Scotland gaining independence. Under European Union law it is possible to discriminate against students from other parts of the member state but not those from other parts of the EU. It appears likely that the government would charge all students the same fee but offer Scottish domiciled students a grant equal in value to the fees. This leaves the future position of other EU students studying for free in Scotland uncertain.

Savills has expanded its analysis of how the purpose built student accommodation sector can play its part in solving the housing crisis and identified 77,000 student properties across the UK that, with the provision of more purpose built accommodation, could be ‘unlocked’ to provide additional family homes.

The firm has also updated its university town and city ranking. This ranking system considers the potential for future development of purpose build student accommodation in each location. This year has seen Aberdeen, Bournemouth, Glasgow, Kingston-upon-Thames and Newcastle join the nine cities that were in the ‘first’ category last year.