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Student Accommodation - The Case for Investment
Date Posted: 08/04/2010
The student accommodation sector is no longer regarded as a niche and emerging asset class. Rental growth and high occupancy rates continue to attract investors in what remains a difficult and unpredictable period for the property sector as a whole. Indeed, the economic climate is forcing more and more investors to consider the student accommodation sector as a vehicle for guaranteeing secure returns on their investment, but why does the sector continue to be so resilient?
The economic downturn has led to more and more people looking to higher education, increasing demand for University places throughout the UK. Preliminary figures supplied by Knight Frank suggest a further increase in the 2010/2011 academic year, with UCAS reporting a 12% rise in applications at its October deadline. The total number of people in higher education has grown from 1.8 million in 1996 - 1997 to approaching 2.4 million in 2009 -2010 (source: Higher Education Statistics Agency). The consistent year on year increase means that demand continues to outweigh supply, enhancing the case for investment into the sector. On top of this, the number of overseas students is also growing, with London leading the way as Europe's preferred destination for International students.
Such high demand breeds premium prices, a key attraction for investors looking for a long term income stream and rental growth prospects. This is especially true in the private student housing sector which generally supplies newer accommodation blocks with higher quality service. The supply of privately run, purpose built student accommodation continues to be dominated by the four largest service providers - UNITE, UPP, Opal and Liberty Living. Although the credit crunch has reduced the number of new developments in the sector, there is continued activity.
Since 2007, residential development land values have fallen dramatically right across the UK. This fall has freed up more locations to develop student schemes on sites that would normally be snapped up by commercial developers. In addition, the number of developers competing for stock has suffered a sharp drop due to the withdrawal of developer debt funding. However, the sector seems to be the exception to the rule as there is still a willingness amongst banks to provide finance for the development of student accommodation, albeit under stricter rules where lending is only granted in cases where the borrower can demonstrate a strong track record in the sector. In the short term, this will restrict the number of new private providers moving into the student arena However, as more credit becomes available, investors will undoubtedly seek to exploit the sectors potential.
All of these factors provide a strong case for investment into the student accommodation sector. In summary, the sector offers investors something that is unavailable elsewhere in an economic downturn, namely high demand, low supply, rising rents and high occupancy levels. As long as this continues, student housing will prove to be an attractive asset for would be investors.