UK Investors Eye Student Housing

CBRE’s most recent Student Accommodation Index shows that investors are pouring money into United Kingdom (UK) student housing as more people attempt to edge into what has traditionally …

CBRE’s most recent Student Accommodation Index shows that investors are pouring money into United Kingdom (UK) student housing as more people attempt to edge into what has traditionally been a profitable real estate market sector. The report shows that some £1.6 billion has been invested in just nine months as UK government programs come online to help student enrollment, particularly for international students. International students spent more than £10 billion on tuition and living expenses in 2011-12 and the construction of better accommodations will likely raise that figure in coming years. For more on this continue reading the following article from Property Wire.

More than £1.6 billion has been invested in UK student accommodation in just nine months, as investors seek to tap in to one of property’s most lucrative asset classes.

According to the latest Student Accommodation Index from CBRE the sector has shown total returns of 9.95% in the 12 months to September 2013, higher than IPD total returns on offices, industrial and retail property over the same period.

The report points out that total UK education exports in 2011 were worth £17.5 billion, making education the UK’s fifth largest services export sector, ahead of insurance and computer services.
Also government support for higher education in 2013 has buoyed investors’ confidence. Measures to reform visa processes, the statement of no intention to cap numbers of international students and the relaxation of penalties for universities who over recruit students has sent a clear signal that the student accommodation sector is being primed for further growth.

‘International students spent over £10 billion on tuition and living expenses in 2011/2012. We expect the number of international students in the UK will grow by 15 to 20% over the next five years, as the demand for English taught degrees continues to lure students from across the globe,’ said Jo Winchester, head of student housing advisory at CBRE.

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‘The result of this popularity is reliably high occupancy rates in student residences and stable income streams, making the sector an attractive prospect for small and large investors alike,’ she added.

According to the index rental values for student accommodation in regional towns have increased by an average 3.5% in 2012/2013, showing healthy growth across the UK. This is compared with a three year average of 3.36%, albeit with quite wide variations between towns.

London’s rental growth was flat this year, at 0.61%. The report says that this was to be expected after an increase in stock and end of cycle rental reductions in 2012. However, London has shown three year rental growth of over 20%.
London continues to attract the most overseas students. However, after the completion of those beds already under construction, the London supply pipeline will be more restricted going forward.

The report points out that the introduction of CIL, tighter planning policies, a selective funding climate, the tendency for universities to seek to transfer risk onto the private sector and the recovery of other property sectors, are all pipeline inhibiting factors. The combined effect is likely to be that rental growth and values of existing stock holds up.

It also shows that total returns have been supported by strong capital value growth, especially in regional towns and cities. The index shows that the average value per bed has increased from £50,700 in 2009/2010 to £56,600 in 2012/2013, an increase of nearly 12%.

The report says this has been partly a result of investment into, and the development of, higher quality purpose built accommodation in regional towns and cities. For the second year running, investment into the regions has reached £1.5 billion, with developers, investors and operators seeing growth potential outside of London, where limited stock is available to purchase.

The UK’s student accommodation sector is piquing the interest of a wide variety of investors. US multi family and student housing operator Greystar recently purchased a portfolio previously operated by Opal worth £310 million.

Australian student housing operator Campus Living is understood to be preferred bidder on a portfolio of 4,539 beds previously run by Opal.
This year has also seen the launch of the first dedicated student housing REIT, GCP Student Living Plc, on the London Stock Exchange, offering smaller investors a new route into the sector.

This article was republished with permission from Property Wire.


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