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Student accommodation

From alternative to mainstream – the evolution of student accommodation

Author: Gemma

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New research from Savills highlights the growth of the student accommodation sector in recent years and provides insights into how the market could develop in the coming years.

For investors looking to make healthy, reliable returns from UK property, it has become increasingly clear in recent years that few asset classes offer greater potential than student accommodation.

Some of the most significant current trends in this market were explored in a recent study by Savills, which noted that student accommodation “has evolved from an alternative asset class into a mainstream investment”.

The growth of student accommodation

Once viewed as a niche market, student accommodation is now a viable and highly attractive prospect for investors from all over the world. This is particularly clear in countries such as the UK, where the enduring appeal of higher education and the global prestige of major universities means property owners can rely on strong demand not only from domestic students, but international applicants as well.

According to Savills, the sector first attracted investors on the strength of its high income returns. As it has matured, a new advantage has become apparent – what the report called “student housing’s counter-cyclical income stream”.

“In economic downturns, demand for student housing tends to increase as students prolong their studies while they wait for the job market to improve, while those out of work return to university to upskill,” the study noted.

Investors currently seeking opportunities in this segment are benefiting from more choice than ever before. Knight Frank recently published an update highlighting the growth in the UK student property development pipeline, with the number of bed spaces due to be added in the 2019-20 academic year 25 per cent higher than the previous year.

There are good opportunities to be found in popular university cities such as Liverpool, which is home to properties like the Aura Student development in the Knowledge Quarter.

The hard data

As well as offering expert commentary on some of the general trends in student accommodation at the moment, the Savills report provided some clear figures to show just how far the sector has come in recent years.

In 2018, student housing investment volumes across the globe reached $17.1 billion (£13.1 billion) – the third year in a row the total has surpassed $16 billion. While last year’s figure was marginally down on 2017, it was 425 per cent higher than the amount invested in student accommodation back in 2008.

By comparison, investment volumes in all classes of global real estate increased by 130 per cent over the same ten-year period.

The data also provided detail on the provision of purpose-built student accommodation in key locations, revealing that the UK is one of the best-supplied markets. The 625,000 available beds, compared to the country’s population of approximately 1.9 million full-time students, means around a third (34 per cent) of people studying in the UK have access to dedicated bed spaces.

This provision rate compares favourably to other countries such as the Netherlands (18 per cent), Germany (11 per cent) and Australia (ten per cent).

The global picture

International students are a key source of demand for investors in student accommodation, since their unfamiliarity with local property markets means they are likely to show a preference for purpose-built, managed housing.

There have been some encouraging trends on this front, with figures from UNESCO showing a 64 per cent increase in the number of internationally mobile students between 2007 and 2017, to more than five million.

The UK, Australia and the US play host to the largest numbers of overseas students, with British colleges and universities witnessing an eight per cent increase in international enrolment between 2012 and 2017.

Recent signs indicate this is likely to continue in the near future, with the British government publishing its new International Education Strategy, with the aim of increasing the number of overseas applicants studying in the UK by more than 30 per cent.

Education secretary Damian Hinds said: “The UK’s education system is world-leading and its reputation is the envy of many countries around the globe. As we prepare to leave the EU it is more important than ever to reach out to our global partners and maximise the potential of our best assets – that includes our education offer and the international students this attracts.”

The future?

UK student accommodation is clearly going through an exciting phase of growth, offering more and more opportunities for investors to secure returns.

Despite the positive trends witnessed in recent years, it is still a relatively undersupplied market. This means property owners can rely on strong demand for existing assets, but also suggests there is scope for ongoing growth in development activity in the future.

Savills’ outlook for the sector highlighted the possibility of strong competition for international students in the coming years, with countries like the UK, Australia and the US offering incentives such as post-study visa extensions to attract applicants from overseas.

The company also discussed the ‘middle-tier’ segment of student accommodation and how it could be a source of growth in the future.

“To date, developers and investors have focused on the premium end of the market,” it said. “There exists significant potential in serving the middle tier between low-quality university stock and new, premium product.”

Regardless of how the student accommodation segment develops in the years to come, there will be clear opportunities for investors to secure an interest in the market and benefit from its huge potential.

Those who move quickly to acquire assets in the most appealing destinations will surely see the biggest gains as this dynamic market continues to evolve.

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