Positivity Abounds in Student Accommodation Sector

The student accommodation sector is filled with positivity at the moment, creating an attractive environment for property investment. Knight Frank forecasts an average blended UK return of 9.2 per cent over the next 12 months...

The student accommodation sector is filled with positivity at the moment, creating an attractive environment for property investment. Knight Frank forecasts an average blended UK return of 9.2 per cent over the next 12 months, reflecting a 0.4 per cent rise in London returns to 9.1 per cent. However, rising rents are the result of the market being relatively undersupplied. Consequently, rents in London will rise by three per cent, while regionally increases of 7.25 per cent will be seen from September 2013.

Commenting on the findings, James Pullan, head of Knight Frank Student Accommodation, said: "Student property is one of the most successful real estate asset classes, thanks to stability of demand for student bedrooms from all over the UK. The market is still structurally undersupplied in all core university cities." However, he stressed that student accommodation is a mid-to-long term investment and access to stock is currently very limited.

The student accommodation sector is also currently dominated by specialist providers and funders, and new operators are finding it difficult to enter the market. However, there is a significant volume of new equity available, Mr Pullan explained. This is helping to make the sector more attractive, in addition to steady rental growth and a perception among international investors that the UK is a global knowledge sector.

However, Mr Pullan stressed there are certain things that cannot be ignored going into the year ahead. This includes a large volume of product entering the market and substantial equity, primarily from international buyers. The first student property REIT has also recently been launched and there is considerable interest globally.

Nevertheless, there has been concern raised about the sustainability of this run of form for student accommodation. The Global Property Guide reported that macro fundamentals throw doubt on the performance of the sector. Primarily, it fears that with a lot of developers jumping on the bandwagon, rental yields in popular spots could fall and saturation may occur.

- Thursday 25 April 2013

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