November 14th, 2014
According to Savills the student property market was worth an astonishing £2.5billion last year, allowing it to become an established and ever-growing investment class. The CBRE Student Accommodation Index indicates that the student property market in particular managed to have a steady yield growth of an average of 9.95%, even in times of economic downturn. Being a robust and highly yield driven asset class, it is considered to be rather similar to the commercial property market. It is not surprising then, that the Financial Times classified it as a “top property asset”, as transactions worth £950million have been made in the first quarter of 2014 alone. The Higher Education Statistics Agency reported that in the academic year 2011/12, the total number of students in the UK was 2,340,375. This number fell drastically by 7.4% in 2012/13, as the British government introduced increased university fees of up to £9,000 for UK domiciled undergraduates. However UCAS application data for 2014/15 clearly showed an increase of 3.4% of student applications. As the government announced a release on the number of students being recruited, universities expect to enlist an additional 30,000 new students in 2015/16.
Although the student property market is evidently thriving, it is still to a large extent undersupplied, as universities struggle to accommodate the increasing number of students. On the other side of the spectrum, Savills reports that there is an increasing longing of students from wealthy backgrounds, particularly from Asia, to have an education in English. Hence student accommodation markets in the US and the UK appear to be the most attractive target markets in the world, as these two alone grew by 780% since the financial crisis in 2009.
LSL Property Services estimated that on average an investor of the student accommodation market would be able to expect a rental yield growth of 7% and more. Knight Frank, a global property consultancy, furthermore forecasts an average increase of return of 1.59% in the coming years.
The high number of students, coupled with the rising demand for student accommodation and fairly low levels of supply, all add to the attractiveness of the student housing market. Savills praise the student accommodation market to possess a promising long-term investment advantage, as it is in fact the private sector that is expect to be growing the most in the near future.