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Student accommodation rental income grows by a quarter in 7 years

Student accommodation rental income grows by a quarter in 7 years

Following on from the European Union Referendum June there have been concerns that an economic contraction could occur across various sectors. Figures of 0.5% GDP growth for the third quarter of the year have largely allayed these concerns for now but, generally speaking, growth has been moderate.

In contrast to the construction, retail and service sectors, property has been a star performer with strong capital gains and yields setting it apart. The Private Rented Sector (PRS) has been booming with both domestic and foreign money seeing buy-to-let property as a safe haven. Among all this, one particular type of property has seen an astonishing growth – Purpose Built Student Accommodation (PBSA).

The value of student housing in Great Britain has increased by almost a quarter in the past seven years, outpacing inflation and price rises in the PRS. The average weekly rent for PBSA in the UK rose 22.5% from £120 to £147 between 2009-2010 and 2015-2016, according to an analysis of figures from the National Union of Students accommodation costs survey.

This rate of increase is almost triple that seen in the PRS. Between September 2011 and May 2016, the average private rent in Great Britain increased 8% according to figures from the Index of Private Housing Rental Prices (IPHRP). The cost of student accommodation in the UK increased by 18% in the same period.

The price rises have coincided with a dramatic shift in the provision of student housing over the past decade. Between 2006 and 2016, the proportion of student accommodation operated by educational institutes fell by almost a quarter. Today, private companies are positioned to become the main providers of student accommodation in the UK. During that time the number of studio apartments, which are typically more profitable, rose to 9% of the overall market – and this growth has been spurred by private providers. There was a 20-fold increase in the number of privately built studio apartments for students between 2011 and 2016.

Since the government raised the cap on student numbers in 2014, universities have struggled to provide enough accommodation. Development of high quality new student accommodation is now mainly the reserve of private developers, and property investors are happily joining in to take advantage of the reliable tenancy rates, high capital gains and strong rental yields. More and more stock is being built to satisfy the demand from property investors.

Despite private providers being set to take over as the dominant force in student accommodation there are still many below standard student villages owned and maintained by the universities themselves. As students seek better value for money, private accommodation will become more attractive with amenities such as gyms and cinemas provided with increasing frequency. High speed broadband is another key issue highlighted by students as some university accommodation fails to meet even this basic need.

The solution to the lack of high quality student accommodation won’t be found by universities struggling to resolve their own supply issues, but rather by inviting keen private investors into the market to provide high quality accommodation at a reasonable cost. The value of student accommodation as an investment will only grow in the future as ever greater numbers of students turn to private accommodation to get the best value for their money.