May 26th, 2016
The performance of the UK student housing market was nothing short of spectacular in 2015. Savills report that 74,500 beds were traded over the year for a combined value of £5.9bn. This represents more than twice as much economic activity in the market as occurred in 2014.
According to Savills, the strength of the market in 2015 can be simply explained as a surge in sales of large portfolios by career investors looking to cash out and reap the rewards of the student market. Another factor is the increasing interest in student property from global investors around the world, from the USA to China, which has played its part in the increasingly good performance of student property as an investment. Both are signs that the market is reaching something like maturity.
In addition, Savills reports that a large percentage of the £5.9bn invested in student property over 2015 was spent on forward funding of future projects, a clear sign of long term confidence in the market. Between 2012 and 2014 an average of 44,000 beds were traded each year for a total of £2.4bn annually.
As can be seen from the above graph, 2015 was a, welcome, anomaly but the figures to date for 2016 show that the market as a whole has grown with the figures from 2016 currently outperforming all other years in recent years.
So can we see that 2016 cannot match 2015, but what can we expect to see over the year?
It is predicted that a total sum of £4bn will be invested in student property by the end of the year, less than in 2015 but still an enormous amount of money. As a consequence of the market reaching a more stable, mature point, it is also predicted that many incoming investors will see the market as a place to establish a reliable stream of income as opposed to an opportunity to make some quick money. Due to the lower value of student property compared to adult property, this means that investors will be looking at economies of scale and larger than usual portfolios. Given that only one third of student property is privately owned and therefore available for sale, it is likely that mergers and large-scale acquisitions will be a feature of the market in the coming years.
The strong yields associated with student property are likely to remain a fact of the market. Student numbers remain high, offering a pool of tenants every year who desperately need somewhere to live. If anything, the demand for private student rental accommodation is growing as traditional university halls of residence become more expensive and, often, more dilapidated year after year. The recent protests about the expense and utter state of the University College London accommodation and the withholding of rent which followed illustrate this point nicely.
There are over 550,000 student beds in the UK, but in most university towns and cities this is still not enough to meet demand. Cities like Liverpool which have an excess student beds are the exceptions which prove the rule that demand for private student rental accommodation has never been higher. The strength of the market reflects this and shows that this is likely to be a strong investment class for many years to come.