Under supply and high demand driving trends in the UK student housing sector

Once a niche sector dominated by halls of residence and dingy digs, student housing has become a substantial and consistently growing market.

Remembering damp walls, draughty windows and elusive landlords is enough to send a shiver down any ex- student’s spine. However, these horror stories are becoming few and far between as the market grows and standards improve.

According to Knight Frank ‘the student accommodation sector has produced positive rental growth throughout every year of the economic downturn’.

Proving to be resilient throughout two of the toughest economic climates, Select Property described it as a ‘cyclical asset’, separate from both the commercial and the residential property markets.

The student market has a ‘low correlation’ with other potentially damaging economic factors; despite events like the general election and the rise in tuition fees (to £9,000 a year in 2012) enrolment at university is at a record high - with a reported 659,030 applicants at the start of this academic year.

Named as the UK’s best performing asset class, Select Property state that £3.3 million was invested in the first 3 months of 2015 alone.

NuWire Investor states that the UK's student scene has an international reputation. Calling it  ‘a top performing asset class … with average yields well ahead of those in the traditional buy-to-let sector’ that has ‘attracted over £6 billion of investment in the past 3 years’.

When did it all start?

Since the Robbins Report commissioned by the British government in 1963, much has been done to address the growing need for adequate student housing.

Committed to growth in the higher education sector, the report addressed the increase in people living and studying away from home, and the poor quality of living that often came with it:

‘Consider the nature of some of the lodgings in which circumstances oblige students to live, the distances that they are forced to travel …,  the lack of privacy - there are cases where three students share one study-bedroom … it can be said that the limit has already been passed.’

In turn, the report also pointed out the educational and social benefits of flying the nest. According to Property News the report caused a ‘precipitated a wave of investment in student halls’ in the '90s by the higher education sector.

However this investment trend was overtaken in the 2000s by an influx in private sector investment.

What’s driving investment?

As the appeal of a British education accelerates globally there has been a significant rise in the number of UK and international students; driving an imbalance in the supply and demand of student property.

Knight Frank establish under supply as one of the main factors driving growth. They acknowledge that many UK universtities only provide accommodation for less than a quarter of their total intake of students - with many students unable to get places in halls of residence.

Reporting year on year growth, Knight Frank's Student Property Index reveals that rental growth in the capital is up 1.73% from the previous year and regionally the rental growth is at a 1.55% average.

Options for investors:

House in Multiple Occupation (HMO)

One option for investors is to buy a House in Multiple occupation (HMO). Established under the Housing Act 1985 HMOs are residential properties occupied by people who do not form a single household.

These properties are often family homes let on a room by room basis, comprising of shared facilities and meaning that the economies of scale work in favour for investors.

However all HMOs need a licence, and this varies depending on the councils and conditions required, and if landlords are found to be renting out HMOs without a licence, they can be fined up to £20,000.

Purpose built student accommodation (PBSA)

The demand for purpose-built student accommodation (PBSA) is at an all-time high. According to NuWire Investor, these ‘purpose-built pods offer a more affordable entry point for investors’  allowing them to invest in a single unit rather than purchasing a complete property with multiple rooms.

Despite being more affordable NuWire also state that they also offer a higher yield: ‘...sometimes by as much as 70%, making it ultimately the better choice in the current market.’

Changing demands

As the tuition fees have increased, students have started seeing the whole university experience with more of a consumer eye.

Knight Frank state that the reason for success in the PBSA sector is the higher quality, professionally managed accommodation, often inclusive of bills and sold as a well-rounded and ‘branded product’.

Keith White – managing director of CRM – largest UK student accommodation provider states that:

“Students are choosing their accommodation for reasons beyond just price. They are demanding clever design that allows social groups to form and bond; such as placing kitchens and lounges at the heart of the design’.

Investors can also gauge viability of an investment, depending on the locality and the universities in the area – in areas with good universities the demand is likely to be higher.

To cater to the demand and the new luxury market the properties have to be in a central, desirable area resulting in more and more PBSAs appearing in iconic buildings and sought after locations (Nido and Urbanest to name a few).

Given its non-cyclical nature and thanks to the rising student numbers there is a continued high demand for student housing – and with the demand outweighing the supply year on year, the UK student property scene is set to thrive.



Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other global industry publications.

@Be_TheBoss

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