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Investment continues to flood into student accommodation

Investment continues to flood into student accommodation

Despite the initial fears that Brexit may have a negative impact on foreign investment it has been reported by the Telegraph this week that huge amounts of money have continued to flood into the Purpose-Built Student Accommodation (PBSA) sector.

The Telegraph was reporting on research released by Savills last week which has revealed that investment into PBSA is expected to increase by an astonishing 17% this year.

There has been a 5% decrease in applications to higher education from British students and a 7% decrease from international students but, despite this, £5.3bn is expected to be invested in PBSA over 2017, compared to £4.5bn last year and a record £6bn in 2015.

The sector has seen a particularly stark increase in the market share held by foreign investors which has increased from 35% in 2015 to 64% in 2016. This indicates a massive increase in interest and trust from wealthy foreign investors who are not only making the most of the low value of the pound but also see the potential and high returns of student property.

There was an expectation that the referendum result of last summer may see investment decreasing thanks to anxiety from investors, but the value of trade was in fact higher in the six months after the referendum than before, with £2.1bn flowing in during the second half of 2016, compared to £1.9bn before.

Analysis shows that the majority of money and interest actually came from the Far East, with a large part of the influx of cash coming from Singapore and, in particular, money from the country’s sovereign wealth fund GIC and the real estate developer Mapletree, which spent a combined £1.2bn on UK student housing last year.

Savills as quoted in the Telegraph, said the sector was particularly popular among those in Asia because, “UK higher education is tangible for them and they can get their head around it easily”.

Jacqui Daly, director of Savills’ investment research and strategy, said: “Their continued investment in 2016 is a massive vote of confidence in the sector.”

Because of the yearly tenancies, PBSA usually has strong rental growth year-on-year and is “countercyclical, making it a good hedge against other risks”, she said.

According to Cushman & Wakefield, rents have risen by an average of 2.7% year-on-year thanks to those strong tenancy rates and consistent student numbers. Those in the industry had expressed concern that the government may not separate international student numbers from immigration targets and it has been said if students were exempted it could mean increases in applications of 6%.

The report highlighted Exeter, Guildford and Leeds as good areas to invest in, due to low levels of supply and the universities’ success in attracting new students.

Other university cities thought to be performing particularly strongly were Manchester, Nottingham, Newcastle and York.

As smaller investors have flourished, this should be seen as particularly encouraging news as there is now strong evidence that despite some uncertainty there is a real appetite for future investment in PBSA.

Now is the ideal time to be expanding student accommodation portfolios and investments as larger investors both domestic and foreign pile into the market in the pursuit of strong returns. Please get in touch today to find out about our latest available investment opportunities!