There are significant opportunities for property investors in the student accommodation market. This is according to Jones Lang LaSalle (JLL), which outlined the scope of the sector and the room for growth in a recent presentation. The firm pointed out the collective value of the market currently stands at around GBP 20 billion, with just 150,000 rooms in purpose-built housing for this demographic available in 2010, compared to the 1.54 million scholars registered at UK universities. JLL also highlighted the high occupancy rates of existing student accommodation schemes, with direct-let properties that are commercially operated currently enjoying just a three per cent vacancy rate.
Aside from London, the organisation pointed out several other British cities that have a high student population, and therefore may be good targets for those seeking real estate investments in this sector. Manchester, Birmingham and Leeds have the largest number of people enrolled in higher education, with the majority of students living with their parents or guardians, or in houses of multiple occupation (HMOs). University-maintained property is the next most-popular option, while commercially-operated schemes account for the lowest percentage of homes. However, in cities such as Nottingham and Sheffield, the number of scholars opting for the latter type of accommodation is close to that choosing to stay in housing provided by the university.
One of the biggest drivers of the student accommodation market in the UK is the influx of overseas scholars. JLL noted the number of foreign students attending British universities has increased by 68 per cent in the last ten years, while applications for courses in September 2012 from those outside the EU are up by 13.7 per cent on 2011, according to UCAS figures published at the January 15th 2012 deadline. In particular, young people from Hong Kong appear to be targeting places, with a 37.3 per cent rise in submissions recorded for this nationality. This has helped mitigate the fall in applications from UK and EU-based students, with the number of candidates from these locations falling by 8.7 per cent and 11.2 per cent respectively.
In January, Knight Frank published its Student Accommodation Index, which revealed returns on this kind of real estate investment in London almost doubled in 2011, rising from 8.4 per cent in September 2010 to 15.1 per cent a year later. Head of student property at the firm James Pullan commented: "Limited supply coupled with rising global interest in the UK's educational excellence points towards further strong rental growth in the sector." He added the core market in London - namely properties with rents of less than GBP 220 per week - put in a "particularly robust performance" in the last academic year. JLL also drew attention to the strong rental growth in the sector, noting student accommodation has consistently done better than other asset classes over the past two years.
In addition, the organisation pointed to "global student mobility" as a factor that is expected to benefit the UK's higher education establishments, because five of the world's top 20 universities are located in the country, according to the QS University rankings. Knight Frank added the number of people choosing to study outside their home nation is expected to double between now and 2025. This could provide significant opportunities for commercially-operated developments, as international students are more likely to feel comfortable dealing with a company, rather than a private landlord.
In terms of why investors should consider student property as a viable asset class, JLL made a number of assertions, including that the number of people attending university doesn't fall in a recession, making it a "secure and stable" investment. In addition, the sector demonstrates a "favourable supply/demand imbalance" and boasts high occupancy levels in comparison to other types of commercial property.
The Jones Lang LaSalle Student Accommodation Market report is available for download in full here (exclusively for IPIN members)
- Friday 24 February 2012