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Student accommodation

Is student accommodation investment still viable for 2014?

Author: Gemma

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With 2014 rapidly approaching, investors will be beginning their search for new opportunities to bring them profits in the New Year.

There are a number of developments on offer, with different investments available to cater for various budgets.
Despite the current educational year being almost half way through, student accommodation could be a particularly beneficial investment in 2014.

With this type of opportunity, it’s important to define your ideal investment early, so you can strike while the iron is hot in time for the 2014/15 academic year.

But what does the student accommodation investment market have in store for 2014 and why should investors seriously consider putting their hard earned money into property of this kind?

According to the experts at Knight Frank, occupational demand is now on a firm upward trajectory and nearly all core UK markets are currently experiencing an undersupply of student accommodation.

They predict 2014 will show increased rental growth, in addition to sharpening yields and improved investment performance.
Increased demand for space in student accommodation developments is not only being stimulated by the growing number of young people turning back to university education after the sharp rise in course fees for the 2012/13 academic year, but also because of an increasing number of foreign students.

People who study abroad are likely to need year-round accommodation, as going home can be financially unfeasible. Therefore, they will generally look towards off-campus accommodation that offers longer contract lengths.

A report from the Department for Business, Innovation and Skills (BIS) entitled ‘International Education: Global Growth and Prosperity July 2013 Department for Business’ fully expects the university acceptance rates to increase in the next five years.
“We believe it is realistic for numbers of international students in higher education to grow by 15 per cent to 20 per cent over the next five years… there is no cap on the number of students who can come to study in the UK and no intention to introduce one,” it stated.

The report also revealed some of the UK locations that have an undersupply of purpose built accommodation, with Manchester, Liverpool, and London just a selection of the areas that need more developments.

Therefore, investment in these areas could be particularly lucrative for investors, with rooms expected to fill up quickly once they hit the student market.

Furthermore, Knight Frank’s research says the rental performance of student accommodation has increased during every year of the economic downturn, and continues to do so.

Rental growth in London is up 1.73 per cent on the previous year, while the regional markets saw an average rental growth of 1.59 per cent.

Keith White, managing director of CRM, also suggested that students are looking into more than just cheap living spaces, suggesting they are willing to pay more for buildings with a clever design and social areas.

“As a result of strong demand and new entrants, we would anticipate that over the coming months the sector continues to perform strongly. The outstanding opportunities await those ready to move away from traditional solutions,” he added.

A CBRE report has also noted that the government has provided more support to the sector, as it begins to understand its role in the economy.

A reform of the visa system and the announcement that no cap will be put on the number of foreign students a university can accept ensures that more young people from overseas will utilise the UK’s excellent education facilities and will need accommodation as a result.

The sector has seen falling investment returns in the last four-years, but this shouldn’t put off potential investors. Current returns stand at 7.8 per cent, while Knight Frank also predicts the student property market will stabilise.

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