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Investors Still Buying Student Property as Yields Remain High

By HopwoodHouse
31 March, 2017


Student property, and especially purpose-built student accommodation, remains a popular choice with investors thanks to continued high yields. Last year saw institutional investors put £4.3 billion into quality student housing.

Student accommodation investment has risen to become one of the prime choices of wealthy investors, and there are a number of reasons behind this. Student property relies on very different fundamentals from most other sectors, with the biggest factor at play being the number of new students. With university intakes growing each year and the market severely undersupplied as developers desperately play catch-up, these fundamentals have been consistently strong in the past few years and the sector has carved out a firm reputation for being resistant to recession.

In a climate where former favourite such as prime London residences and city centre office space are in an uncertain position, this reputation is a very real asset indeed for the student sector. Brexit fears, tax changes, and tightened regulations have hit many other kinds of property including many that would more usually be favoured by wealthy institutions, but the student market has remained comparatively unscathed.

Arguably the biggest attraction that student property holds, however, is the strength of its yields. At the very top end of the market, purpose-built student units can command rents of up to £650 per week. As well as being high in absolute terms, these figures stack up favourably against the relatively low purchase prices that student “digs” command, which become even lower still when investors are willing to buy traditional buy-to-let properties. From the developer end, high demand for quality student housing has seen some projects earn profits of £60,000 per unit within two years. With this considered, it is little wonder that developers have taken to throwing lavish events at luxury venues in a bid to woo wealthy institutions from around the world with their student property projects.

This combination of a strong market and strong yields now drives investors from within the UK and around the world to pour billions of pounds into the student sector every year. Last year, £4.3 billion was invested in student units, research by real estate specialist Savills has revealed, with 51,150 units purchased by institutions. Notable investors included UBS, the Swiss bank, which spent £31 million on a development built to accommodate 184 Imperial College London students while also making investments in cities such as Newcastle and Belfast. Another prominent buyer of UK student property was the Vero Group, which is majority-owned by Goldman Sacks, and which now has approximately 23,000 student beds in its property portfolio.

While other country’s student housing markets are starting to offer opportunities that more closely rival those in the UK, analysts nonetheless expect the UK student sector to enjoy comparable transaction volumes in 2017. Rents are also forecast to keep rising through the rest of this year, as the market remains badly undersupplied to the point where even the quite significant level of development taking place is failing to effectively catch up.

 

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