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Student accommodation

Can 2015’s record year in student rentals be repeated in 2016 and beyond?

Author: Staff

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In 2015, the student accommodation market in the UK was at its strongest level ever in terms of investment, with as much as £5.9 billion invested in the growing sector thanks to its increasing demand and improving levels of quality. It meant that 74,500 new student rooms came to market in 2015, far higher than the long-term average of 44,000 that has been in evidence since 2012.

Savills said the strength in the market in terms of the amount of money coming in was pushed forward by two main factors. On one hand, the rise in the number of development portfolios that came to market in the first three months of 2015 in particular meant some real money being spent, while the increase in investment in existing stock also helped to bolster the sector markedly.

investment activity

The inherent health of student accommodation was largely responsible for the latter of these factors in particular, with investors increasingly looking to build portfolios of varied stock in assets that are performing well. This meant that as much as £4.75 billion, or 80 per cent of the spend for 2015 as a whole on student properties, came in through existing levels of stock.

But following on from a strong year in student investment, can the market continue to perform in this way moving forward?

According to Savills, it may well be the case, largely because of the marked change in the attitude of those who want to invest in student property in recent years. In the past, investors in such assets tended to be those who were looking for quicker returns, but now, the asset class is seen as being one for those with long-term intentions. This means that not only will more people be attracted to the market as it nurtures and grows this reputation, but also that those in it will look, much like they do in the mainstream rental market, to consolidate and spend further through increasing their rental stock over the coming years.

The report from Savills also shows how the student market is changing and becoming more like the residential sector in terms of the types of investors dominating the market. Previously, we’ve seen universities lead the way themselves when it comes to student accommodation, before big companies started to get their own slice of the pie in recent years.

Graph

However, this is changing yet again, and what we are now seeing is more smaller landlords and investors getting themselves into the sector. In 2015, as many as 50 per cent of the top 30 investors in the market were those who had fewer than 10,000 beds in their portfolios, showing a shift in the market.

In the long term, this can only be a positive for the student property market. A more diverse type of investor means that the sector is performing well on a mainstream level, once again showing how well student property has shaken off the tag of a niche asset class in recent times. And as long as it continues to do that, we will see more diversity in investors, and as a result a more steady rise in investment levels for years to come.

Savills Map

While Savills is predicting that this might not manifest in 2016 – the record set in 2015 may be a stretch too far to follow – the expected £4 billion invested in student assets this year is still going to be 57 per cent ahead of 2014. This shows real potential for strength in investment to continue for years to come, meaning the records set in 2015 may not have just been the results of a freak year after all.

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