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Student accommodation

Record levels of investors now putting money into student property

Author: Staff

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It’s been no secret that the last three years have been very strong for the student property market.

Ever since the start of 2012, when the number of students in the UK started to rebound and saw investors start to take a renewed interest in stock, the level of money coming into the market has been growing. It has seen student property become the golden asset in the UK, with investment topping £2 billion in each of the last two years.

However, if the 23 per cent rise in investment in student property in 2014 was impressive, the increase so far in 2015 has been nothing short of remarkable. As demand continues to grow and the prospects for the sector continue to look strong, the first half of 2015 has seen investment of some £4.2 billion in student property.

This is already 70 per cent ahead of the £2.45 billion that was invested in 2014 as a whole, showing just how exceptionally strong the market is at the moment and the sentiment that investors have towards student property. So what is the reason for such strong investment levels in the UK student property market at the moment?

Student numbers stable

Perhaps the biggest factor at play at current is the fact that student numbers are performing so strongly. When there are more students in the market, it stands to reason that the demand for property will rise. The previous fears that an increase in tuition fees would damage the market in the long term seem to have subsided, as the volume of applicants, and particularly those from overseas, climbs from the severe drops we saw when tuition fee increases were first implemented in 2011.

Although the latest figures from HESA show that in the 2013/14 academic year there was a slight drop in the number of students in the UK as a whole (down 1.7 per cent), these falls were far lower than had been witnessed in previous years, where they topped some six per cent. Such small falls in numbers can be indicative of a far more mature market that is over the very worst it faced just a few short years ago.

In addition, this slight fall was largely attributed to just one market, and it happened to be the least important for the property market. Part time student numbers in 2013/14 were down by over eight per cent, while the two more important metrics for student housing investors – numbers of full time and non-EU students (both of whom are more likely to require accommodation) – were up by 0.8 per cent and 3.4 per cent respectively.

The key thing to consider for investors is whether these fluctuations are indeed indicative of a more mature market, or whether they represent a dip that needs to be taken more seriously. However, according to figures from Savills, the former may well be the case, with the future in terms of student numbers looking good at present. It said that in the current year, the number of applicants as a whole is up by 3.4 per cent, which bodes well for student investors.

Purpose built accommodation

Another reason for the rise in investment in the last few months (and even before) has been the fact that there is now far more purpose built accommodation being constructed expressly for use in the student market as opposed to just being bought for this purpose. This is something that has been happening for 25 years, according to Savills, but the past few years have seen it become more and more prominent.

Students no longer want to live in bedsits and houses split into four or more rooms. They want high-quality modern accommodation that they are also prepared to pay for. It has allowed a growing number of landlords easier access to the market in a way that they can manage without the difficulties traditionally attached to letting to students.

Whereas they might have had to deal with maintenance and repairs, as well as chasing rent and making sure the property is treated well, the rise in dedicated student builds has allowed them the chance to invest in single units within a new structure, before allowing a management company to deal with the ins and outs of the letting process.

In addition, the investor is able to get themselves a guaranteed return over a number of years by buying this type of stock rather than the more traditional student property. The rise of this sort of investment, which is mutually beneficial, has meant that the investment in the student market has become easier and more convenient than ever, leading to far more money being poured into the sector.

The future

So what do we expect to see moving forward? According to Savills, this year will continue to be incredibly strong for the student property market, with investment levels growing time and again. It believes that by the end of 2015, the amount of money coming into the sector will have topped £5.5 billion. With the student numbers growing and assurances having been given that foreign students will not be counted in migration figures, this is something that is only likely to continue moving forward.

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