Costs Rising in Student Accommodation Market

Costs are rising in the student accommodation property investment market, thanks to the Community Infrastructure Levy (CIL). Developers are now faced with additional costs, according to the CBRE, as public contribution requirements have been made higher.

Costs are rising in the student accommodation property investment market, thanks to the Community Infrastructure Levy (CIL). Developers are now faced with additional costs, according to the CBRE, as public contribution requirements have been made higher. CIL will replace Section 106 and is to be set by each local authority. However, student accommodation is known to attract the highest draft CIL rates in many areas, including London boroughs.

In Islington, CIL for student accommodation is 33 per cent higher than for residential development. This means developers could be deterred from entering the market in certain areas, causing an undersupply of purpose-built student accommodation. Consequently, residential property will need to be transformed into student housing to fill the gap - something which is already starting to cause a problem in the market.

While Section 106 will not be entirely phased out until 2014, CBRE research shows CIL costs will likely be higher. This is because their is no scope for negotiating on CIL liability. CBRE is now urging developers to make representations to local authorities on the draft rates before the consultation period ends.

Jo Winchester, head of student advisory at CBRE, said: "The new CIL rates have the potential to restrict the pipeline of new student housing development, especially in London but also in key regional towns. Student accommodation is a national success story for property, as significant funds have been invested not just in London, but in towns and cities across the UK. The proposed CIL rates could make land bids for student housing development uncompetitive against other uses."

However, Ms Winchester explained that with the student pipeline restricted, owners of existing buildings will enjoy increased rents and overall value, especially in key London boroughs. Yet this will come at the expense of increased pressure on the private rented sector, particularly as student numbers increase. The UK continues to be one of the top global destinations for higher education, despite rising tuition fees. In fact, UCAS figures have shown a 2.7 per cent increase in application since 2012.

- Wednesday 24 July 2013

*This page is provided for information purposes only and should not be construed as offering advice. Flex Profit Hub is not licensed to give financial advice and all information provided by Flex Profit Hub regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.