Students today are savvy consumers who want quality accommodation and are more than willing to pay a premium for this privilege. In a market that favours luxury and convenience over price, students are progressively attracted to accommodation that offers everything under one roof; from communal areas and free WiFi to on-site gyms and even cinema rooms.
As a relatively young asset, student accommodation has witnessed a significant upsurge in popularity with investors in recent years. With low supply, rising demand and notably high-gross returns, student accommodation makes a lucrative and sustainable investment opportunity for astute investors.
Student property investment was up 25% in 2017, reaching $4bn (approximately £3.1bn) according to real estate consultancy Knight Frank. This is predicted to continue for the foreseeable future.
There are a few key reasons why luxury student housing is offering an enticing prospect for individual investors. With over two million students in higher education in 2016/17, according to the Higher Education Statistics Agency (HESA), there are now more students than ever in the UK. The rate of this increase has left the government unable to provide sufficient housing for every student, which has paved the way for the private sector to begin developing student accommodation and focus on luxury residences.
Regardless of accommodation becoming more expensive with an increase in tuition fees, luxury student housing as a market is booming. A study by Knight Frank has suggested that accommodation now comprises a smaller proportion of the total living costs for students. Consequently, an increasing number are willing to spend more on housing expenses. It certainly seems that students are less stringent than they once were and are more accepting of the inevitable debt when they leave university. Some students also simply do not want the burden of dealing with common letting issues.
- Reditum Capital provides £4.5m mezzanine facility at 90% LTV
- Global student housing investment volumes up 87%
- 2018 has been 'toughest' year for PBSA occupancy
Despite a looming Brexit, Britain continues to attract students from all around the globe. The UK is home to a number of the best universities in the world with Oxford and Cambridge taking the top spots in the Times Higher Education’s ‘World University Rankings 2018’. As a result, student accommodation has transitioned from a borderline, alternative property sector to a pervasive and mainstream market. Foreign students account for around one fifth of the student body and 41% of those individuals are in private accommodation, according to the latest research from JLL.
Figures from JLL for the second quarter of 2018 reveal that current yields in student accommodation range from 4.25% in prime London to over 7% in regions.
University accommodation should now be considered as a must-have part of any UK investment portfolio and at Reditum Capital we have been actively exploring this emerging market in recent months. Hotspot university towns for consideration have been Exeter, Leeds, Bath and Birmingham, alongside the evergreen appetite of the London market.
As the sector matures, it is becoming increasingly recognised for its resilience during uncertain times. We foresee continued appetite from investors looking to get robust returns.
Finally, the use of joint venture initiatives in developing luxury student accommodation means that individual investors can now enter this market with the added security of working with experts in property development. As such, investors can be exposed to relatively low-risk levels, while avoiding any of the property management headaches.
Overall, the evolving demographics and attitudes of millennial students means that luxury student housing is set to become an increasingly profitable and important part of all property portfolios. The new collaboration of developers, individual HNW investors and financiers shows how the luxury student housing market has evolved to become more lucrative than ever before.