The past two years have been fantastic for the student accommodation market in the UK, with investment having soared in just 24 months as more and more people plough money into what has become one of the most popular asset classes in the UK.
In 2012, student accommodation investment in Britain topped £2 billion for the first time when it hit a total of £2.7 billion, according to CBRE figures. And although there was a slight fall in 2013, the organisation reported that the £2.1 billion spend maintained a strong sentiment for the asset by producing the first back-to-back £2 billion-plus years.
Overseas investors – most of whom would have seen general buy-to-let as a strong option in the past – have moved towards student investments in recent years. CBRE reports that as recently as 2011, 23 per cent of student investors were from outside the UK. However, by the end of 2013, appetite for the asset had climbed so substantially that they accounted for 52 per cent of all purchases.
So why has student investment become such a popular venture for people to put their money into?
The student market
One of the primary reasons for increased investment is the fact the student market is so strong. Knight Frank says that as student numbers in the UK have swelled in the past few years, universities have struggled to keep up with demand for accommodation, which has increased demand for private rentals.
The growth in student numbers in the regions in particular has been a driver behind student investment. In 2013, CBRE’s student accommodation reports show that 88 per cent of the £2.1 billion spent was invested outside London, with the likes of Manchester – which has one of the largest student populations in the whole of Europe, with more than 100,000 students enrolled across five universities – main players in the growth of the sector.
In the space of just a decade (between 2001/02 and 2011/12) the number of students in the UK grew by more than 500,000, according to the Higher Education Statistics Authority (HESA). And although 2011/12 marked a peak from which the following two years have seen drops, student numbers are on the rise again.
Despite the higher fees that have hit prospective students in recent times, UCAS applications for 2014/15 were up by 3.6 per cent compared to last year, showing a growing demand for both places on courses and property, as students start to see an increase in value from their degree and a better chance of securing work after they graduate.
For any investor, the main reason to buy into an asset is to make a substantial return, which has helped to drive student accommodation. Savills half-year predictions suggest that returns for this year could hit 14 per cent for student properties, almost doubling the figure seen just a year ago.
One of the main reasons student property has become the golden asset in the past couple of years, however, is the simple fact that it outperforms many other asset classes.
Knight Frank’s latest insight, Student Property 2014, shows that towards the end of 2013, annual returns for student accommodation were at 7.88 per cent, which was far in excess of many other assets.
General property returns for the same period stood at 5.4 per cent, retail at 4.3 per cent, and both office and industrial came in at 7.4 per cent, showing just how well student investments are performing for buyers compared to other types of asset.
Health in student investment is expected to continue to grow throughout 2014 as well, according to the latest report from Savills, which said that in the first four months of the year alone spending stood at £950 million – creating some 17,000 beds. This was far ahead of the figure seen at the same time in 2013, and the organisation predicts that investment will top £2.5 billion for the year as a whole, continuing the strong performance seen in the past two years.