Prospects For Investment In Student Accommodation

Student property may not be the first investment category that springs to mind when considering real estate in the UK, but figures indicate that this could be a highly lucrative sector for investors to enter....

Student property may not be the first investment category that springs to mind when considering real estate in the UK, but figures indicate that this could be a highly lucrative sector for investors to enter. One reason for this is the sheer number of people who now enter higher education in the UK - with the Browne Review revealing that 45 per cent of those between the ages of 18 and 30 now go on to attend university - up from 39 per cent of this demographic a decade earlier.

In the short term, applications for higher education courses are expected to rise due to the impending fee increases in 2012, which have been implemented following the findings in the Browne Review. Knight Frank's head of student property James Pullan recently commented that "students will find that there is an undersupply of student accommodation to meet their needs".

As a result of this high demand and chronic shortage of suitable abodes, construction companies are moving in to build dedicated developments targeted at those entering higher education. Mr Pullan stated that the sector "is now recognised as forming a critical component of a balanced investment portfolio". However, investors need to choose their properties wisely, experts have cautioned.

Director of student investment and development at Savills Marcus Roberts commented earlier this month that "it is all about location", as well as the size and type of accommodation that is being proposed. He pointed out that many local communities and planning officers are keen to move students out of multiple-occupation houses and into specific developments, thereby bringing more homes back on the market for families.

Peter Mindenhall, researcher at IPINGlobal.com, added that converting houses near universities for students is not as cost effective "compared to the value and quality that a new managed development can offer". Investors may therefore want to consider the opportunities opening up in this area - and look for high-quality schemes.

In terms of the best locations in the UK for investment in the sector, London stands out, in part due to the number of people attending its many universities. According to this month's Drivers Jonas Deloitte crane survey of student accommodation in the capital, there are 55,000 purpose-built student rooms in the city, compared to 283,500 individuals in full-time higher education.

Head of student housing at the firm Chris Baldwin said: "The fact remains that we are still a long way from filling the supply gap and this level of undersupply looks unlikely to ease anytime soon." The shortage of accommodation for undergraduates appears to be impacting on rental prices, with those living in London currently paying an average of 145 GBP per week for their digs. This is 55 per cent higher than the UK average, Drivers Jonas Deloitte noted.

But Mr Baldwin is upbeat about prospects in the sector, despite increasing pressures on student finances. He explained that those pursuing further education in London are among the wealthiest, while the high proportion of scholars coming from overseas to go to universities in the capital are unlikely to be as greatly affected by potential funding cuts - and rising fees.

But it is not only in London that investors can potentially find a good return on their investment. Research published earlier this month by Paragon Mortgages found that the highest rental yields in the country are generated by students, with landlords able to expect, on average, yields of 6.45 per cent from this demographic. Meanwhile, the Knight Frank report into the sector stated that Kingston, Brighton, Edinburgh and Durham are among the top-performing student accommodation markets in the UK.
 

- Monday 25 July 2011

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