Knight Frank has released its 2014 Student Property Insight which examines the performance of the asset class and explores the current demand for new-build accommodation. Here are the key points of the report:
Structurally Undersupplied Market
Identifying an imbalance between demand and supply within core university towns and cities, the report states that ‘all core markets currently remain structurally undersupplied. With student numbers rising the imbalance will not be corrected within the short term.’
In most markets, despite a rise in investment in purpose built student accommodation (PBSA), there is far less PBSA available than university-run accommodation. Knight Frank research shows that typically, UK universities only supply accommodation for around ¼ of its total student intake.
The report suggests that the main driver for the development of PBSA is a demand from overseas students who prefer to spend more money on high-quality accommodation.
David Willetts, MP and Minister for Universities and Science, has voiced his support for new build accommodation deeming it ‘imperative for UK universities to maintain their global competitiveness will drive the further development of high quality accommodation as part of the overall student experience package.’
Knight Frank’s research has revealed that the student accommodation sector has ‘produced positive rental growth throughout every year of the economic downturn.’
Emphasising the resilience of the sector, rents have continued to increase despite the rise in university tuition fees. London rental growth is up 1.73% from the previous year and the average regional rent is up 1.55%. Across the UK blended rental growth increased by 1.59% to Sep 2013.
Cities with strong performing universities and an undersupply of accommodation have seen strong rental growth. The report names Bristol, Edinburgh, Cardiff, Liverpool and Newcastle with the highest increase in rents. However Preston, Leeds and Birmingham all recorded a one-off rental reduction.
Interestingly, the Index shows that studio rents have increased slightly more than rents in en-suite cluster flat bedrooms.
HMO vs. PBSA
The 2014 Student Property Insight has revealed that students recognise the value of privately operated, purpose built accommodation. With bills included in the price, variable tenancy lengths and higher quality rooms and facilities, there has been an upward trend in the number of students staying in PBSA.
Total Investment Returns
The Knight Frank report states that total investor returns in student accommodation for September 2013 were 7.8%. Rental growth in Sept 2013 was positive but arguably relatively muted with Knight Frank forecasting rental growth in 2014 will move to 2.75% in the regions and 3.0% in London.
Highlighting the resilience of the sector, student property has continued to outperform every other asset class in the year to September. This has been the case since September 2011. Now considered an established asset class, an undersupply of accommodation in key university towns and cities will help to ensure positive rental growth.
“Student property returns will continue to outstrip traditional asset classes with yield compression into 2014,” the report states.
For more information about the performance of student property investment, click here to download the Knight Frank Student Property Insight 2014.