Student Property Investment: Key Growth Drivers

Over the past few years, we’ve seen the student housing market grow exponentially from a niche asset to mainstream investment. Considering that the UK’s student-to-bed ratio has risen from an average of 2.1 to 2.3 students per bed space, demonstrates the number of students choosing to live in purpose-built student accommodation (PBSA), which has more than doubled in the last 10 years.

In fact, the UK’s leading independent real estate consultancy firm, Knight Frank, has suggested that the PBSA sector has consistently been the country’s highest-yielding property asset since 2011. What’s more, the PBSA market is one of the very few asset classes that have continuously been delivering rental growth since 2007.

To learn more about the growth in the UK’s PBSA market, we’ve taken a closer look at some of the main driving forces behind the boom.

Home to the World’s Top Universities

It’s no secret that the UK’s universities tend to fare well in international rankings, and that the growing number of students applying to study at UK universities has reflected this year after year.

Despite Brexit, UK universities are still on the rise as far as enrolments are concerned. In academic year 2016/17, UK universities saw record intake levels for both home and EU students, at a total of 496,830 – and that’s before adding the number of international students, which hit the UK’s third-highest ever level.

The Shortage of Suitable Student Housing

For such large numbers of home, EU, and international students choosing to study at UK universities, there’s a distinct undersupply of suitable student housing in UK towns and cities. Indeed, global real estate services provider Savills estimated that, on average, only 26% of UK students in higher education have access to PBSA (including university halls).

There are huge variations across regions, too. For example, popular university cities like Liverpool and Manchester are becoming increasingly saturated with private stock, while the access levels to such homes in other urban areas – like Stoke-on-Trent, Preston, Bradford, Leicester, and so on – are only hitting somewhere near the 20% mark. In cases like Stoke, where the city boasts two growing universities, both of which welcome more students per year than the local student housing market can keep up with, students are having to turn to the private rented sector for their accommodation.

Rising Rents

Speaking of the private rented sector, in recent years, weekly rents for en-suite accommodation in the UK has seen an average climb from £120 to £143 – making it one of the largest contributing factors to the demand for student housing. With an almost 3% increase being seen annually, it’s reported that rents will be rising faster than property prices in next five years. This, coupled with other growth drivers of the sector, shows that the UK’s PBSA sector is really beginning to catch the eye of more and more investors – including many who aren’t based in the UK, which brings us to the next and final point.

Investment from Global Market Players

The single biggest PBSA transaction in 2017 came from Singapore real estate fund Mapletree – a £417m bid to acquire the Ardent Portfolio – but the sector has drawn interest of other major market players too, such as GIC Private Limited and Unite Group Plc. Along with the UK’s two student housing REITs (GCP Student Living and Empiric Student Property), these funds and partners manage more than 31,400 beds across 24 locations in the country.

Mergers and acquisitions are predicted to become a defining investment feature over the next few years as companies look to consolidate the fragmented market. As the UK market continues to grow, student housing provision is expected to further integrate with REITs and investment funds, capitalising on cash-on-cash deal yields. Nevertheless, investors can look forward to a strong credit profile in the market, offering more attractive lending terms than the overall residential market.

(Read our previous blog post for more commentary on the rise of investment in student accommodation, where we touched on Singapore’s particular interest in the UK’s student housing sector.)

For more insights on what we can expect from the UK’s student accommodation sector moving forward, be sure to . If you’ve already invested in student property in the UK, then we suggest you get clued up with in their academic ventures.

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