Even now, after going on for 6 years of deeply depressing monetary misery and erratic economics the global economy is still on life support. Well, actually, keeping with the medical metaphor it is in the high dependency ward struggling to be moved into recovery.
Never the less some investors are finding the cure. Investors realized very quickly that if they were to wait for the final and definitive global recovery then they would have already missed the bulk of the best opportunities. Armed with this realization investors began looking for opportunities and what property investors are buying into really falls into 2 categories, safe haven locations, safe haven asset classes and dirt cheap distressed properties in established markets – there is very little appetite for emerging markets, with the exception of the likes of Turkey, with strong fundamentals.
One safe asset class that investors are snapping up hand over fist is student investment property. This is a very low risk investment because the occupants are already there ready to rent, and very high levels of occupancy come packaged with the investment.
For the last 3 years student property investments has grown strongly, and not just because of the low risk and pre-set occupants, but because demand for university places is soaring and with it demand for student accommodation. This is especially true because the number of accommodation spaces hasn’t grown anywhere near as fast as the number of students applying for and receiving places in UK universities. The most acute imbalance between supply of student accommodation and demand is in top university cities such as Liverpool, Oxford, London, Birmingham and Leeds.
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According to the latest report from CBRE investors purchased some £800 million worth of student investment property in the UK in the first half of this year, more than double the £375 million invested in the first half of last year. According to the report supply is incredibly short in the private rented sector of student housing, fueling occupancy of around 99%, which in turn will lead to continually rising rents. This is on top of an average 22% growth in rents between 2007 and 2010 according to NUS/Unipol data. The CBRE report said:
“With reported occupancy rates of 99 per cent or more and a lack of supply in the private rented sector, rents for purpose built accommodation are expected to grow annually in most university cities at least in line with inflation.”
According to the latest figures from UCAS the number of applicants for places has been hit slightly by the rise in fees this year, but the growth in the numbers of overseas students is more than making up for it. Even factoring in the drop we still have huge supply shortages, especially for custom built student housing units.
The private sector has stepped up to fill this void, new developments are being built and old ones refurbished. In some opportunities the developments are either being leased to one or more universities – some are even built especially for this purpose. In these opportunities the risk is near zero because the tenants are there waiting for the units. In some (rare) cases the developments will not be linked to a university. These developments will often be within close distance of several universities, and will often come with rental management.
In an investment environment where reliability of return is more important than size of return, student investment is a winning package because the existing pool of tenants means the management company or developer can practically guarantee a certain (high) level of occupancy, allowing the investor to calculate yields and make informed choices – exactly what investors today are looking for.