Savills World Student Housing report 2017
Political uncertainty has failed to derail student property as it continues on its path to becoming one of the most lucrative asset classes found anywhere in the world. This is the finding of the latest Savills World Student Housing report, which says the US and UK, as the world’s most mature student housing investment hotspots, have stood strong in recent times.
Both nations have faced a degree of uncertainty in the past 18 months. The US welcomed a wave of controversy after the shock election of Donald Trump as President, while the UK has been rocked by the Brexit vote.
However, neither of these major political events seems to have caused the type of unrest in the student property market that would have been expected. In the UK, the sector continues to welcome the sort of investment that has helped it rise out of its previous niche position, and while 2016 saw a slight dip compared to the peak investment levels of 2015, it has remained strong in the eyes of investors throughout the 2016/2017 period, for a number of reasons.
Upgrading and new demand
One of the primary reasons investment has continued strongly in the UK private rented sector is the rise of the purpose-built student accommodation (PBSA) market. To put it simply, as student demands continue to change, traditional housing options have been deemed not fit for purpose, and the private sector has been increasingly tasked with meeting demand.
Savills said that at present, as many as half of students in the UK live in private accommodation, and a fifth in university-owned PBSA, showing just how the market is changing to meet demand.
Students going to university these days are typically coming with bigger rental budgets in mind, and this is particularly true when it comes to overseas undergraduates, who have grown in number by five per cent compared to ten years ago.
These students typically want quality to be at the heart of their accommodation, as they seek out comfort, and an environment that is conducive to their studies.This is something that the PBSA has reacted well to in the last few years, incorporating some of the most important needs and desires into new developments that help make them a favourable option in the eyes of student tenants.
Things like private rooms that offer communal spaces for socialising, on site amenities like gyms, laundry rooms and entertainment, study spaces, a strong location and an all-in cost are all drivers of demand in student housing. And when traditional accommodation cannot tick all these boxes, it’s up to private investors to fill the gap.
Over the last few years, these demands from students have become ever more prominent. As traditional student housing becomes obsolete, it’s the need for new homes, and the subsequent meeting of this from the private sector, that has allowed student property to enjoy the rise it has.
Foreign student influx
Growing global student mobility, as mentioned above, has been a driver of growth in the PBSA market for the last few years. As student numbers have stayed largely steady, a rise in the proportion of foreign undergraduates coming to nations like the US and UK, which enjoy education systems held in high regard, has allowed PBSA to flourish.
According to UCAS data, there are currently around 2.3 million students enrolled in higher education in the UK alone. This is still below the peaks enjoyed before tuition fees were rolled out, but the five per cent rise in international students in the past decade means that there’s an increasing, new audience for student housing, and by extension, investors.
It’s not just the figures that promote the market, however. Sentiment is also important. Even since the Brexit vote, the UK has shown that it has such a high quality of education available, that there is not any great rush for students to stop applying here. That vote of confidence resonates with investors, who need to see that their assets have long-term potential, and shows them that even if the UK has witnessed potential adversity, its student market has the strength to power through and give them strong returns.
Despite being such a relatively small country, the UK accounts for ten per cent of the world’s top 500 universities, coming second to only the US, and it’s this quality that helps the market keep pushing forward.
The other factor that has had a real impact on the prevalence of student property investment in the UK has been the rise of the asset on a global scale. Investors are now more willing than ever to go across borders to secure such assets, and places like the UK are well suited to them.
According to the Savills World Student Housing Report, for the 2016/2017 period, student accommodation accounted for 37 per cent of all global cross border investment. This put it ahead of traditionally more successful asset classes such as offices (34 per cent) and retail (29 per cent).
This has been a reaction to the fact that student housing has proven itself to investors, showing that it is both secure and income-generating. These combined has made student housing an increasing target in the eyes of international buyers, and Savills expects to see this remain the case for some time to come.
In the future, the report states that it’s expected that student housing will continue to push its way into mainstream portfolios, as international spenders see it as a way to safely diversify, while also making an impressive income for years to come.