Student property “no longer a niche investment”

Student property is “no longer a niche investment”, say experts, as rising demand for accommodation has turned the sector into one of the UK’s best assets.

The government lifted the cap on university places in England last year, prompting a record number of undergraduates to be accepted on to university courses. 409,000 people were accepted to start higher education courses in August 2015, 3 per cent higher than the previous year.

University accommodation, though, has struggled to keep up with the population. Now, purpose-built developments and the residential buy-to-let sector are both helping to house students.

Private investors have more than risen to the task: according to CBRE, more than £5.5 billion of investments changed hands in the student property sector last year, more than double the £2.2 billion invested in 2014.

“The UK student property market is no longer a niche investment,” confirms Aaron Campbell, Managing Director of investment specialists PrinvestUK.

“Over the past 5 years, the purpose built student accommodation (PBSA) market has developed from being one of property’s best kept secrets to become one of the UK’s best performing property asset classes. Previously almost exclusively available to investment funds and large corporations, the last five years has seen private individual investors become increasingly active within the student property sector.”

Just as students have raised their expectations of quality from their accommodation, though, purchasers have also become more discerning in their choices; with new projects popping up all over the country, investors are increasingly seeking out the best returns in the best locations.

“Offering a student accommodation investment with a high rental return is no longer enough,” says Campbell.

Indeed, PrinvestUK routinely uses industry data and investor trends to track down the best new projects on the market.

“Using research such as the Savills Development League Table, which ranks locations by their investment potential, we seek out developments in the top tiers, finding projects in proven locations such as London and Cardiff, as well as up-and-coming places,” explains Campbell.

“Projects such as Kingfisher House in Huddersfield will deliver high quality student accommodation with modern apartments and a range of state-of-the-art communal facilities in an area where demand is high and supply is low.”

As the student accommodation market matures, investors are not only seeking high quality properties in undersupplied locations, but also reliant on their ability to generate a sustainable rental income. The hunt for the right student property investment has seen a growing number of investors turn away from major cities, such as London, where property prices are high, to regional cities, where supply and demand imbalances can provide returns that are both strong and, more importantly, realistic.

Kingfisher House, for example, is forecast to enjoy high occupancy levels for years to come.

Campbell also highlights Cardiff as a hotspot to consider.

“Using rental rates from comparable developments in the area, off-plan developments such as Cardiff Student Village can provide purchasers with a realistic and achievable rental return figure that can be sustained after the rental assurance,” he comments.

With the cap on applications now off, the student property population is only expected to continue growing, with an increasing number of overseas students attracted to studying in the UK. Investor interest, too, shows no signs of slowing down. According to JLL, direct investment in UK student housing market has surged from £500 million in 2010 to £3.8 billion in the first half of last year.

Exam season may be looming for universities across the UK, but student housing has already graduated from being a niche investment. Investors, though, must make sure they learn as much about the market as possible to reap the rewards.

“The student accommodation market is continuing to grow,” adds Campbell, “but through looking at the entire picture, you could be benefiting from your student property investment for years to come.”