Investment in student housing set to rise in the UK

London’s full time student population is expected to rise by 50% in the next 10 years while capital flows into student housing is expected to triple reaching £5.7 billion by the end of 2015, new research shows.

Indeed, direct investment in the UK student housing market has surged over the past two years, rising from under £500 million in 2010 to £3.8 billion over the first half of 2015 and £1.5 billion in London, says the report by property firm JLL.

Non-European Union students have been the fastest growing segment, with numbers increasing by 50% over 10 years and a recent study by London First shows that international students bring a net benefit of £2.3 billion per annum to London's economy supporting 60,000 jobs in the capital.
The research further highlighted that rising house prices and constraints on mortgage lending have forced more people into rented accommodation. More students are also renting and 28% of London’s student population are living in Houses of Multiple Occupation (HMOs).

The provision of university managed accommodation has not kept pace with the growth in student numbers and the increasing quality and quantity of PBSA stock has provided students with a welcome alternative to the rising rental costs of HMOs, the report points out.

Additionally, two of the fastest growing segments of London’s student population are overseas and postgraduate students, who have occupied much of the PBSA (Purpose Built Student Accommodation).
‘We have seen extraordinary growth in UK student numbers over the past 20 years and while UK student numbers are now stabilised, international student numbers set to rise dramatically in the next decade,’ said Philip Hillman, chairman of JLL’s Alternative Division.

‘The provision of good quality student accommodation was traditionally the responsibility of the universities but in recent years, most new accommodation had been provided by private investors and developers,’ he explained.
‘The Gross Value Added supported by student spending throughout the UK is of the order of £25 billion per annum. This represents 1.03% of UK GDP. Put in perspective, this figure is equivalent to one third of the total contribution of the aviation sector to UK GDP,’ he added.
According to Himanshu Wani, associate director of UK research at JLL, purpose built student accommodation in the UK has seen a significant rise in investment activity, with projected capital flows into the sector of £5.7 billion by the end of 2015, up from £1.7 billion in 2014.

‘This is especially pronounced in London, with one of the largest student populations globally, supporting strong demand for student housing. Indeed, with the London student population expected to rise by 50% by 2025, one of the main challenges will be developing sufficient supply,’ he said.
The report points out that student housing is one of the largest sub-sectors within the ‘alternative’ property asset class. Alternatives comprise all of the real estate sectors beyond traditional office, retail and industrial and includes healthcare, leisure, self-storage and student housing.

In tandem with student housing, alternatives are making up an increasing share of the UK real estate investment market. In 2014, 20% of all transactions were in alternative sectors, up from just 5% in 2010. In the first half of 2015 some 28% of all property transactions in the UK were in alternatives, including hotels.