Consistently out-performing traditional investments in the commercial property sector throughout 2011, student accommodation is proving that it is still the leading asset class when it comes to lucrative rental yields for investors.

The continuing shortage of purpose-built student accommodation throughout the UK is driving developers to diversify their portfolios into this profitable market, through a combination of refurbishment projects and new-build developments.

Where to Invest!

London: According to research conducted by property experts Knight Frank, the largest area of undersupply is London, where there is an acute need for student accommodation at an average price point of £150 to £200 per week.  As property developers responded promptly to this need by providing the market with a variety of projects to invest in, the increase in average rental prices in the capital rose by 9% in September 2011, allowing for higher than expected returns in existing developments.  However, investors are advised to be cautious as, although rents are rising, land prices are much higher than in the regions, producing lower yields on the property as a whole.

Regional Cities: With student numbers reaching as high as 200,000 in Leeds and 57,000 in Liverpool, demand for high-quality accommodation in regional cities is particularly robust, particularly when considering the rise in post-graduate units at the individual establishments.  It is in the regional towns that specialist companies like Knight Knox International are leading the way in regards to providing bespoke, sophisticated developments which offer students hotel-style amenities at affordable rental prices.

This regional outlook is echoed by James Pullen, Head of Student Property at Knight Frank who says “Outside London …investment in towns which have more than one university with a high density of students can be the most lucrative”.

Demand in the regions is particularly healthy, with average returns holding at 6.5%; higher than those in the capital.

By Samantha Jones