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Will student accommodation investment grow further in 2018?

Will student accommodation investment grow further in 2018?

The Purpose Built Student Accommodation (PBSA) asset class is now barely recognisable, considering what it was like even five years ago. Whether we like it or not, students and higher education have become big business since the introduction of tuition fees in 1998.

Originally just £1,000 per term, and means tested, the majority of tuition fees are now just shy of £10,000 per term, with student debt in some circumstances exceeding £50,000 by the time students have graduated.

This, in turn, has commodified education to the extent that almost all aspects of student life are now measured in terms of potential profit, whether that is accommodation, stationary, levels of education or simply student shops on campus.

Some cannot abide the idea of higher education being transformed into business statistics in this way, but on the other side of the argument it’s almost impossible to deny that standards have been raised at the same time.

As an example, in Manchester alone, The University of Manchester, Manchester Metropolitan University and The University of Salford have all unveiled multi-million pound buildings, freshly built, in recent years.

Student satisfaction is regularly measured highly, although opinions on tuition fees themselves tend to be extremely negative. The experience of attending higher education is a good one, it seems, despite fears over affordability.

With a moving away from state-funded university education came the inevitable step that universities would no longer seek to build or maintain their own student housing stock, especially as privately rented options began to spring up with better facilities in better locations.

Anybody who attended university in institutionally-owned accommodation may well remember halls that resembled hospitals with shared bathroom facilities and kitchen areas that barely had enough room for a pan to cook noodles in.

That’s changed, though, and as the years have progressed and the institutions that provide higher education have improved their facilities on campus, so too have private development companies that have invested millions into state-of-the-art accommodation either newly built or through architectural salvage, as we covered last week.

With the growing prominence of ‘student pods’ has come a huge increase in private investment into them. Student landlords needn’t be in the same bracket as those offering large houses anymore, much less the stress and responsibility that comes with it.

Many have invested relatively small sums of money, in comparison to traditional residential buy-to-let, into student pods to receive high yields and good capital gains. Despite re-sale not being as liquid or easy as residential, the outlay and returns are often well worth the difference.

According to Savills most recent report on student housing, released in May 2017, 68,000 beds traded in 2016 with a total value of £4.5bn. In 2017 they expect this to rise to 75,000 beds trading for £5.3bn, a rise of 17% year on year.

Those numbers represent a rather staggering year-on-year increase, and the fact remains that higher education is gaining in popularity rather than contracting.

EU students and international students in particular appear to be eyeing the UK as one of the premium global education destinations along with the United States and Europe. With a number of the UK’s universities sitting comfortably highly in global league tables.

According to JLL, London’s full-time student population is expected to rise by 50% over the next 10 years, which will exacerbate the existing shortfall in student housing supply.

According to figures released by Savills there were 112,000 full time students in the UK that had travelled from the EU last year, and 285,000 from other countries across the globe. According to Universities UK this translates into a not insignificant £25bn contribution to the UK economy, with a decent amount of that finding its way towards student rents.

According to UCAS, the international student community is set to rise further by 6% roughly each year.

If PBSA investment were to simply continue at the same rate next year, this would represent a hefty £901m increase, taking the total to £6.2bn invested into the asset class in 2018.

With yields high and capital growth and rent increases following suit, who can confidently say that’s unlikely to happen?

If you’re interested in learning more about student property investment, contact us today to find out more!