UK student accommodation investment
In recent years, UK student accommodation investment has proven its value as an asset class for investors looking to Great Britain as a source of strong, consistent and long-term returns.
The market has witnessed significant growth in investment volumes in recent years, as well as strong rental demand from students and ongoing development activity.
Looking ahead to 2019, these positive trends appear set to continue.
Strong investment trends
Investors from within the UK and overseas have continued to gravitate to the student accommodation market in recent years, despite the economic and political uncertainty caused by Brexit.
According to Knight Frank, some £4.07 billion was invested in purpose-built student accommodation in 2017, up from £3.1 billion in 2016. This followed the high of £5.1 billion recorded in 2015, the year before the EU membership referendum.
By the end of 2018, the cumulative value of student housing investment transactions in the UK is expected to reach £4.5 billion, marking an increase of more than ten per cent from last year. The sector as a whole could be worth £50 billion to the UK economy by 2019.
In a report published earlier this year, law firm Taylor Wessing highlighted some of the “fundamental characteristics and drivers” that have made UK student accommodation such an attractive investment over the last five years, notably:
• The supply/demand dynamic
• The sector’s stability and resilience to economic downturns
• Relatively low risk of tenant default
• The reputation of UK academic institutions
Taylor Wessing noted that these factors “remain compelling” and will continue to drive growth and investment volumes in the market in the coming years.
Supply and demand
Student demand for rental property is the fuel that powers the sector and delivers strong occupancy levels and rental yields for investors.
All the signs on this front remain positive, with questions about the UK’s current and future relationship with the European Union doing nothing to damage the reputation of British educational standards and institutions.
The 2018 edition of the Times Higher Education World University Rankings featured two UK universities at the top of the list for the first time, with ten more featuring in the top 100.
As real estate services firm Cushman & Wakefield noted in its UK Student Accommodation Report 2017-18, there are now more students in higher education than ever before, with some 1.7 million studying full-time.
Furthermore, there has been a clear increase in the number of people pursuing their studies outside their home region, increasing the need for purpose-built accommodation close to university campuses. More than one million students are now in higher education away from home, 56 per cent more than in 1999.
The growth in the UK student population is particularly evident in locations like Newcastle and Liverpool, which are currently offering investment opportunities such as Opto Student Newcastle and Aura. These cities have witnessed significant increases in student numbers in recent years, owing to the choice of higher education institutions on offer and the lifestyle benefits that many young people are looking for.
Strong demand from tenants is a highly encouraging factor for investors in student accommodation, particularly when it is twinned with tight supply.
According to Knight Frank analysis of property development data across more than 60 UK university towns and cities, approximately 23,000 purpose-built student bedrooms are due to be completed by the start of the 2018-19 academic year. This will increase available stock by 4.3 per cent.
However, the firm stressed this is not enough to address the current supply/demand imbalance. Throughout the UK, full-time student numbers outweigh available bed spaces by three to one.
For investors, this means strong, consistent demand, good rental value prospects and reliable yields from the UK student accommodation investment market.
What will 2019 bring for UK student accommodation investment?
As well as analysing the current state of their target market, investors need to look ahead and think about what the future might hold.
With a full Brexit withdrawal deal yet to be finalised, there remains a degree of uncertainty for the UK economy in 2019, but the student accommodation market has already demonstrated its ability to withstand external pressures and uncertainty.
It looks set to be one of the safest bets for investors in the coming years, particularly with such robust tenant demand to underpin rental returns. UCAS announced earlier this year that a record proportion of English 18-year-olds had applied to higher education, which suggests that the flow of demand into the sector will remain strong for the coming years.
As far as investors are concerned, there is certainly a lot of interest in student accommodation as the industry looks ahead to 2019.
What the experts say…
In a recent survey of 155 leading real estate investors by Knight Frank, nearly four out of ten respondents identified specialist assets – meaning automotive, healthcare and student accommodation – as their primary target with a three to five-year hold. This was the first time this group of assets emerged as the most attractive class for investors.
Chris Bell, managing director for Europe at Knight Frank, said opportunistic investors will be “looking at emerging asset classes and peripheral locations to generate returns”.
He added: “In this context, the emergence of the UK as the European market of choice in 2019 is interesting, suggesting many think that pricing looks attractive.”
Looking at specific investment locations in the UK, Knight Frank has identified Cardiff as an emerging market, since it offers good-quality universities to attract students, but relatively low availability of housing stock.
The firm noted that cities fitting this description have tended to outperform the UK average in rental growth and are likely to continue to do so, owing to the imbalance between supply and demand.
Cardiff is one of a number of locations offering positive conditions for student accommodation investment and inviting opportunities for buyers to make healthy returns.
As the start of a new year draws ever closer, investors should be on the lookout for the best projects and developments offering a route into the thriving UK student accommodation investment market in 2019.
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