Many countries have seen their student accommodation sectors thrive in recent years, reaching a total global value of £4.6 billion ($7.2 Billion USD) in 2013 according to Savills’ Student Housing Report. Across many major markets, the UK has been something of a leader in this trend. The entire country has suffered from a housing deficit, and few groups have felt this as keenly as students thanks to rising university applications and an increase in the UK’s popularity as a destination for international study.
The result of this has been serious undersupply, high demand, and rapid growth of investments in the sector. In particular, cities such as Liverpool and Manchester have seen significant growth thanks to a supply of student accommodation that is simply incapable of meeting demand.
Last year, less than a fifth (19%) of students were able to stay in accommodation provided by the university such as halls of residence. A further 26% lived at home with their families, studying at institutions within commuting distance. More than half (51%) of the total student population, however, lived in privately-rented accommodation. This has led to very high demand in many UK student markets for high-quality accommodation that suits both the practical needs and the budgets of students. This applies to the familiar approach of shared, multiple-occupancy private homes, and also to the purpose-built student accommodation sector which has seen significant growth in recent years.
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This situation has, over the course of the past few years, led investors to pay much closer attention to the student market than they once did. Where it was previously something of a specialist sector with a relatively small following, it is now a popular asset class. Many investors who previously never gave much thought to the sector are now keen to take advantage of the attractive rental yields and extremely high demand that the market offers. With student numbers continuing to rise every year and new builds doing little to dent the current high demand, the market looks set to retain its status as a source of attractive, high-growth opportunities for some time yet.
Because of this high and still-rising level of demand, rents are also continuing to rise. Annualised regional growth stands at 2.75% on average, and in London this figure is 3%. Naturally, this is impacting positively on the returns that investors in the sector are seeing from their properties, with many experts considering student properties one of the most attractive assets in this regard.
Despite the chronic undersupply of property, students are also becoming more discerning and willing to pay more for accommodation that is better-suited to their needs. This perhaps explains the fact that high-quality, bespoke-designed student developments are experiencing especially strong growth at present. These present some excellent opportunities for investors. As well as benefiting from strong demand, a student "pod" is usually cheaper than investing in a one bedroom flat, yet risks are lower and yields tend to be higher because of high demand and strong growth.