According to Savills, the past two years have seen student property investment in the UK soar. According to an analysis paper recently issued by the firm, 2012 and 2013 saw total sales of £5 billion in development sites and standing stock.
2014 could be a year of similarly high activity, according to some of the signs so far. In the first four months, according to the most recent data, transactions covering over 17,000 student beds were made with a total value of around £950 million. This shows a year-on-year increase compared to the same four months of 2013, and is also above the same period in 2012. Taking into account the fact that investments currently on the market are worth a further £1.4 billion, Savills predicts that 2014 will ultimately see around £2.5 billion worth of transactions.
2013 saw a reduced level of investment activity compared to 2012, albeit still strong. Savills’ director of world research, Yolande Barnes, says there are important trends to be recognized in this. The total volume of investment activity dropped by a third, even though the number of beds traded dropped by only 18%. However, Barnes notes that key regional markets actually saw a very significant increase in the number of trades – fully 76%.
According to Barnes, "the attractiveness of the student housing sector to investors" means that this trend is not likely to falter in the near future. However, she also notes that "investors will have to bear in mind some of the risks."
Average initial blended yields experienced a slight drop in 2013, from 6.3% to 6.2%. This, Barnes believes, reflects increased competition in London and other prime markets. Nonetheless, this was a small drop and overall represents relative steadiness, which Barnes takes to reflect "the riskier profile of student demand" in the key regional student property markets.
For 2014, Barnes forecasts 13.7% total returns from student property investment. Blended yields, she believes, will drop to 6.0% and combine with rental growth of 3.5%.
The report highlights the role that tuition fees are playing in shaping the current market. There are several fee-related factors that are impacting on the current student market. 2012/2013 saw a decrease in applications after a fee increase, though numbers are now recovering according to data from UCAS. Furthermore, there is a great deal of uncertainty surrounding what will happen to tuition fees should Scotland become independent.
The data also shows evidence of the student demographic moving increasingly towards higher-quality accommodation. This is leading to an increase in the popularity of purpose-built student accommodation rather than the more traditional set up of multiple students sharing a house. The report points out that the provision of more purpose-built student accommodation could help to solve the housing crisis. An estimated 77,000 student homes could be "unlocked" for use by families if more dedicated, high-quality student accommodation blocks were provided.