The student property sector offers positive and robust potential for real estate investors with restricted supply and strong demand, according to a new report.
There has been a 5% per annum growth over the last six years in the sector compared with just 0.6% for commercial property and the growth has been even higher in key university towns and cities, the Knight Frank Student Property Review 2009 shows.
As demand for university places continues to rise with a 12% increase in applications for places in the 2010/2011 academic year, the student accommodation sector is maturing and becoming recognized as an important element of the wider property investment market. Since mid 2009, there been increased demand for secure income producing assets and demonstrable yield compression, the report says.
The report says the sector performs well because student numbers have continued to rise and the total number of people in higher education has grown from 1.8million in 1996/1997 to almost 2.4million in the 2009/2010 academic year, reflecting a growth rate of over 2.5% per annum, and this is forecast to continue rising. The majority of key University towns reported nearly 100% occupancy in halls last year.
This growth has been significantly influenced by an increase in overseas students which is predicted to rise further in the next academic year with the number of applications from the Republic of Ireland up by 43% and a 27% increase recorded from Chinese students. The number of postgraduate students is also rising.
The report points out that the supply of new student accommodation remains limited and existing supply levels mean the vast majority of students do not have the option of a privately operated room. Only 26% of London’s higher education students are able to access halls, with only 3% having access to the private sector halls. Also, many regional cities still do not have a good mix of different types of accommodation so there is an opportunity here.
Student rents have continued to rise, growing by an average of 5% per annum over the last six years. In the last academic year this rise has been even greater. Bristol, Leeds and Liverpool saw a 13% rise in student rents, they were up 12% in Nottingham, 11% in Cardiff and Leicester, 10% in Edinburgh, London and Birmingham, 9% in Manchester and 7% in Newcastle.
Knight Frank predicts a future growth in values with opportunities for well-located en suite cluster schemes in London and top university cities. ‘Given the lack of product in the development pipeline, especially in the capital, there remain excellent prospects for resilient financial returns,’ the report says.
‘Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future. There is strong demand for high quality, income producing assets and it is anticipated this will continue with increased appetite from investors for direct let stock,’ said Tim Goddard, head of student property at Knight Frank.