Investment in the UK student accommodation sector is set to reach GBP3.1 billion in 2016, making it the second highest year on record, according to a research report by Cushman & Wakefield.
The focus of investment over the year has been in the regions, with the proportion of transactions in London falling by approximately two thirds. The report says this is likely to be due the reluctance of investors to trade out of stock in the capital and their inability to replace with new developments. A further GBP0.25 billion is under offer and GBP0.95 billion is in the market which could yet transact before the New Year
This year has seen 62 transactions take place at an average of GBP734,000 per bed space. As with 2015, portfolio transactions were the largest. The top transaction was GSA & GIC’s purchase of the ThreeSixty Portfolio for GBP430 million. The second largest was Brookfield’s purchase of The Rose Portfolio for GBP420 million.
Demand for student accommodation remains strong. There are more students in the system than ever before with 1.7 million now studying full-time, up 0.4 per cent from the previous year. Despite intensive development in some areas, the ratio of students seeking a purpose-built bed has increased. Cushman & Wakefield’s figures show that the national student-to-bed ratio has now risen from an average of 2.1 to 2.3 students per bed space.
The international (non-EU) student population now stands at 284,000, or nearly one in five students. Non-EU students have a significant impact on the income profile of UK universities, making up 26 per cent of all tuition fees despite making up only 17 per cent of the student population. It is too early to assess what the full impact on EU students will be for the 2017 entry and longer term. Cushman & Wakefield’s report states that universities are lobbying hard to ensure that any future immigration policy changes in the wake of Brexit does not restrict the mobility of students.
Mike Mitchell, partner in Cushman & Wakefield’s student residential investment team, says: “The growth in student numbers, including those from overseas, continues at pace. We believe this is driving a ‘marketisation’ of the student accommodation sector as competition intensifies between universities with improvements in the teaching and infrastructure facilities and services provided to students.”
The supply of student accommodation is also growing faster than ever before. The number of purpose-built beds has reached 568,000 – an increase of 5.4 per cent on the previous year. Growth has predominantly come from the private sector with 21,400 new beds in 2016/17. Stock development continues to be driven by studios, which is the fastest growing room type in the private market, up 24 per cent from 2015. Rents in the sector have risen by an average of 2.7 per cent as demand continues to outstrip supply.
Mitchell adds: “With over GBP1 billion of potential investments currently queued for sale, 2017 will undoubtedly be another strong year for transactions. There are several overseas investors with unfulfilled requirements circling the market. This will undoubtedly act as a catalyst for further sales and consolidation into 2017 – especially as real estate investors increasingly turn to alternative assets such as student accommodation in search of returns unavailable elsewhere.
“Against a background of increasing costs, increased supply and a tougher planning regime, we expect the development risk premium to move back to a more sustainable level. For developers faced with high land price and construction costs, the opportunity to acquire secondary stock and recycle and refurbish will become much more attractive.”