Investment in student accommodation in the UK has not diminished, despite fears that an increase in tuition fees, which is due to come into effect in September 2012, would discourage youngsters from applying for university. In fact, figures published earlier this month by CBRE revealed almost GBP 800 million was ploughed into the sector in the first half of this year, more than double the GBP 375 million that was invested during the same period in 2011.
Head of student housing advisory at CBRE Jo Winchester pointed out that a shortage of good-quality assets is helping drive the sector, with not enough rooms to meet demand, either from undergraduates looking for somewhere to live or investors who want to take advantage of this lucrative area of the property market. A Savills report published earlier this year also came to a similar conclusion, suggesting many educational establishments will be looking at ways to transfer their existing accommodation assets to outside investors. As a result, the firm stated there are "unprecedented opportunities for investors in high-quality university locations not otherwise available to them due to a lack of newly-built supply".
The latest data published by UCAS following its June deadline for applications for the forthcoming academic year revealed that, overall, 7.7 per cent fewer people applied to go to university. However, despite UK and other EU student numbers being down by 8.9 per cent and 12.9 per cent respectively, submissions from non-EU scholars increased by 8.5 per cent this year, offsetting some of the reductions from elsewhere.
Director of Infinity Property Solutions Kamlesh Padhra is confident overseas students will continue to support the UK's student accommodation sector. "The British education system is one of the best in the world, which despite higher tuition fees, attracts more foreign students to study in the UK, as their qualifications are renowned across the world. As a result, the accommodation market will continue to be strong around all towns and cities where there is a large university present," he asserted.
London is one location that many investors are drawn to, due to the strong underlying fundamentals of its real estate sector, as well as the high number of universities in and around the city. Savills expects the capital to remain undersupplied in terms of dedicated student accommodation projects, noting the 14,800 bed spaces currently in the pipeline are "a fraction" of the amount required. However, CBRE pointed out the lack of suitable developments is a nationwide issue - and one that is likely to boost the sector. The firm is anticipating "robust rental growth prospects" in most places around the UK, while the changes to the real estate investment trust (REIT) regime could open up the market to indirect investment.
In its Student Housing Viewpoint published earlier this month, CBRE commented that many institutional and individual property investors prefer to go down the indirect investment route, with university accommodation lending itself to "a fund-type structure, which spreads the risk between towns and maximises operational efficiencies". The organisation is confident the forthcoming alterations to REITs "should make it easier to create new, more transparent fund structures", and address the limited number of options available to those who would prefer to put their money into indirect investments.
Meanwhile, Accommodation for Students (AFS) recently conducted a survey that revealed undergraduates returning to study at UK institutions in September will have to contend with an increase in rental costs, as well as the higher tuition fees. According to the firm, the average charge for leasing a student room has risen by 2.4 per cent compared to the same time last year.
However, the research highlighted steep rental growth in some locations that have historically been cheaper places to study. For example, rents in Lancaster have climbed by 24 per cent annually, while accommodation costs in Hull are up by 25 per cent in the same 12-month period. Simon Thompson, co-founder and director of AFS, explained: "A key factor in determining student rents is the desirability of attending some universities. That puts pressure on the accommodation available and, hence, the charging of higher rents." Investors considering entering the market may want to bear his comments in mind when looking for suitable assets, as demand for places at local educational establishments is one of the main things that will ensure a student property investment delivers good returns in the mid to long term.
- Friday 17 August 2012