The surge of investor interest in purpose-built student accommodation (PBSA) shows no signs of abating this year, according to research from Cushman & Wakefield. Data shows that £4.8 billion worth of student accommodation stock will be traded by the end of 2017, with H1 investment volumes up 24% on last year.
In its mid-year profile of the sector, Cushman & Wakefield reported that there were currently 11,000 beds being marketed to investors totalling £1.2 billion; another £188 million worth of stock is currently under offer. This builds on a strong 2016 in which £3.1 billion was invested in UK PBSA according to Knight Frank. Investors are attracted by stable yields, long-term returns and high demand. In 2015/2016, approximately 2.3 million students were studying in UK higher education institutions.
Mike Mitchell, Partner in Cushman & Wakefield’s Student and Residential Investment team, commented: “Across the UK, the purpose-built student accommodation market continues to be one of the most attractive asset classes in real estate for investors. Despite applications to universities falling by 3.7%, the sector has witnessed year-on-year rental growth.”
He continued: “Due to the value of foreign currencies against the pound, there has been an influx of capital from overseas buyers in 2017 who are now competing with UK purchasers. Recent deals have seen investors from the Middle East, Singapore, China and Russia.”
The performance of the market reflects a shift in the nature of student accommodation. Scruffy halls of residence and overcrowded houses on the outskirts of town are becoming a thing of the past. Today’s luxurious city centre student accommodation features gyms, concierge, cinemas and games rooms. Research from Knight Frank shows that over one-fifth of students are willing to pay more than £160 per week for the right facilities. Good behaviour from a new generation of more conscientious students is also part of the trend. At a recent investor conference in London, participants commented on how potential damage to buildings is less of a concern than in years gone by. If developers are happy to spend more on attractive facilities, appetite among students rises.
The undersupply of accommodation is one of the factors fuelling the market. According to student property developer, Unite, there are 3.5 students for every purpose-built student bed, with a 60,000 increase in first-year students predicted for the academic year beginning in 2017.
Higher education: a leading UK export industry
The rise of the student accommodation market mirrors the fact that higher education has become a high-growth UK export industry in its own right. Off-campus spending by international students is worth billions to the UK economy, shown by a study conducted earlier this year for Universities UK by Oxford Economics. The data revealed that in 2014-15 spending by international students (and their visitors) generated a knock-on impact of £25.8 billion in gross output in the UK, supporting 206,600 jobs in university towns and cities across the UK. In the North West of England, international students’ off-campus expenditure was £458 million, generating a £281 million contribution to local GDP and 3,995 full-time jobs. In 2014-15 international students paid an estimated £4.8 billion in tuition fees to UK universities.
The Cushman & Wakefield research shows applications from non-EU students are up by 2.2%, although the figures are down for EU applicants by 3.7%. The UK is the second most preferred destination in the world for overseas students, behind the USA. This popularity has a considerable influence on the current size of the UK PBSA market, which has so far shown its resilience to the UK’s decision to leave the EU; as we’ve previously reported, data from Savills showed that 68,000 student beds worth £4.5 billion were traded in 2016, with volumes 54% higher than the average for the last five years. These findings and those by Cushman and Wakefield show PBSA to be an extremely viable option for investors looking to diversify in challenging economic times.
Julian Ramsden | 12th September 2017