Student housing

Why is the student housing market so attractive?

Development Finance Today has spoken to a number of property professionals to find out why investors have been drawn to the growing student housing market.

JLL has predicted that the student housing sector will account for £1 in every £10 invested in the UK commercial property market in 2017.

Paul Riddell, head of marketing and communications at Lendy, said it was continuing to see student accommodation as an attractive investment option, particularly if investors purchased the right kind of property in the right location.

“This is largely because UK student accommodation is still seen as a sound investment, with student numbers holding up well, and demand outstripping supply.

“While overall applications from students for higher education were down 4% for the 2017/18 year on the previous year, there was still around 500,000 students who were accepted to university courses in 2017/18, according to UCAS.

“As the supply of purpose-built student accommodation (PBSA) is still not keeping pace with the growth in students over recent years, demand will nearly always be high if people invest in areas with a high student population.”

Steve Larkin, director of development finance at LendInvest, added: “Student accommodation remains an attractive, and typically solid investment due to supply and demand.

“This is certainly reflected through the amount of enquiries we get for funding student developments.

“This being said, a robust development plan is absolutely vital when tackling this market.

“The seasonality of student intake means there need to be contingency plans in place to deal with any unexpected delays, to ensure that the properties are ready for student viewings at the right time.”

Scott Marshall, managing director at Roma Finance, also agreed that student accommodation was attractive for investors.

“It offers high yields and students often pay in advance for the whole academic term or year.  

“We've seen more landlords move into this space in preference to traditional buy-to-lets.

“There's more purpose-built student accommodation being built, but there are still big opportunities for smaller, privately developed HMOs.

“University towns have a consistent demand for rental property as students will always need good-quality housing.”

The student housing market has grown significantly in major cities such as London and Bristol, but the latest report from JLL claimed that the trend was spreading to smaller regional cities, including Southampton.

Paul added: “Student housing has been one of the main drivers in the growth in alternatives investment volumes and it is expected to account for 34.7% of alternatives investment volumes this year .

“A major driving force in the student property investment market has been overseas capital, as international buyers looking to capitalise on the depreciation of sterling nearly doubled their share of the market between [2014] and 2016, rising from 35% to 64%.”

Hayley Scott at Investec Structured Property Finance, said: “We have seen yield compression in 2015/16 and now they have generally stabilised across the board.

“Strong investment into this sector in [the] recent past has taken out the ability to attain such strong investor returns (previously economic internal rate of returns of 20% were available).  

“That being said, if an asset is in a good location for the local university, and rents are priced appropriately, there is still opportunity – albeit at more conservative returns.

“We have seen rents continue to rise year-on-year, allowing investors to enjoy inflation protection.

“It remains to be seen how much further rents can go, given intrinsic affordability and interest rate increases, and this could affect land values and the success of future developments.” 

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