UK student property providing consistent returns for real estate investors, report shows

Student properties in the UK have delivered consistently healthy returns over the past five years, according to the first industry benchmark to accurately track performance in this sector.

Total annual returns from student accommodation hit 13.5% in September 2010 and average rents for investment class student accommodation rose 2.2% across England and Wales in the year to September 2010, according to the Knight Frank Student Accommodation Index.
 
But there were regional variations. Average rents in London fell back over the period by an average of 3.6%, whereas rents for regional cities rose by 4.1%. Investment returns across England and Wales fell back from 6.56% in September 2009 to 6.25% in September 2010 while current investment yields stand at 6% in London and 6.5% in the regions, the index shows.
 
‘Student property has delivered consistently healthy returns over the past five years. The sector avoided the crash in both capital values and rentals seen in the wider commercial and residential sectors in 2008 and early 2009,’ said James Pullan, Knight Frank’s head of student property.
 
‘Across England and Wales rents have continued to rise into the 2010/11 academic year by 2.2% on average, reflecting the strong demand for accommodation from a rising student population, but also the ongoing process of improvement and enhancement being undertaken by the student accommodation operators,’ he explained.
 
‘Investors are looking increasingly favourably on the sector as they are attracted by what are perceived to be the contra cyclical properties of investing in Education. Specifically investors are seeking security of income and the wider investment case offered by student property and this is demonstrated by the sharpening of yields over the past 12 months by over 30 basis points from 6.56% to 6.25% in the 12 months between September 2009 to September 2010,’ he added.
 
The report also shows that full occupancy is a characteristic of the sector. In the regions outside London rents have risen by around 4.1% over the last academic year. In London there has been some pressure on the high end stock which has resulted in an overall fall of rents this year.
 
The general outlook for rents is of continued pressure for annual growth with undersupply of student accommodation still a pronounced feature in most markets. ‘In London we project a stabilisation of rents over the forthcoming year with developers targeting strategically accessible transport hubs to provide high quality accommodation at sustainable rents,’ said Pullan.
 
‘With total returns at 13.5% in September the sector is continuing to deliver strong and stable performance for investors. The outlook for 2011 is extremely positive. The sector is well positioned to deliver stable and sustainable returns against a turbulent economic backdrop,’ he added.