In the 1st feature in our First Choice Property Investment series, we look into the pros and cons of student accommodation.
UK student accommodation will be the main focus of this feature due to the high level of investment the market has witnessed however, if you are interested in other markets, click here to read a previous article which covers the asset class on a global level.
UK Student Accommodation Investment
In the first 9 months of 2015, $6.5 billion worth of investment was pumped into the UK’s student accommodation market.
This record-breaking amount of money follows heavy investment levels in the sector over the last few years. In 2014, £2.9 billion worth of student housing stock was purchased by investors.
As the attention of investors shifts towards the asset class, it begs the question as to how the sector has emerged as a first choice property investment.
According to Jo Winchester, head of student housing advisory at CBRE, it is all about the supply chain.
“So long as demand outstrips supply, upward pressure on both rents and capital values will continue to make the market an attractive proposition for investors, and we don’t expect the market to come off the boil for some time.
“Although there are differences between residential and student accommodation operational models, some larger student housing operators and investors in the sector are beginning to explore build to let development and investing in the private rented sector. As this happens, it is possible that the operational models could become more closely aligned,” Ms Winchester commented.
Rise of the Alternative Asset Class
The experts at Jones Lang LaSalle (JLL) think that one of the reasons behind the sudden interest in student accommodation is the fact that it is becoming increasingly mainstream.
The ‘follow the crowd’ effect appears to be one of the reasons behind a large amount of investment in the sector. As the student property market is thrusted into the limelight, many agents are experiencing a surge in demand for opportunities within the sector.
“We have seen significant investment in UK student housing so far this year, with particularly strong interest from Russian, Canadian and US investors. This is a trend we expect to continue as we push into the second half of the year,” Philip Hillman, chairman of the alternatives group at JLL said.
“As the alternatives sector becomes increasingly mainstream, the liquidity in the market and increasing variety of investors with diverse underwriting approaches to the sector dynamics continues to drive investment,” Hillman added.
Growing student numbers
The United Kingdom is now home to 2.3 million students yet there are just 524,000 purpose-built beds.
Student numbers continue to rise which will mean the imbalance between supply and demand will widen.
Strong exam results posted from this year’s A-levels added more students to the market. According to UCAS, an extra 520,000 students were accepted onto courses.
“We have seen extraordinary growth in UK student numbers over the past 20 years and while UK student numbers are now stabilised, international student numbers set to rise dramatically in the next decade,” Hillman said.
“The provision of good quality student accommodation was traditionally the responsibility of the universities but in recent years, most new accommodation had been provided by private investors and developers.”
Highlighting the demand for new student developments, research shows that 28% of students look for new, purpose-built accommodation rather than going through their chosen university.
A First Choice Property Investment?
Rising student numbers and record investment levels make student property investment a market to watch.
The student sector could prove fruitful for those looking to diversify their property portfolio. This video interview between Experience Invest and The Telegraph provides more information about investing in the student sector.