INVESTMENT
Digs for gold
Investors are studying the returns on student accommodation. Andrea Kirkby reports.
L
ow interest rates have driven investors to look at new ways of generating extra yield; every extra basis point counts. No wonder then,
that both institutional and retail investors are taking a close look at the high yielding student property sector to improve their returns. With inflation still running at high levels, Jennet Siebrits of CB Richard Ellis says, “Investors are particularly attracted to the inflation hedging characteristics of the sector.” Investment in the sector has risen from
just £350m in 2009 to £840m in 2011, according to James Pullen, head of student property at Knight Frank. Investors have been well rewarded, he says, “Student property has outperformed every other asset class”. Year-on-year returns for the year to September 2011 stood at 11.5 per cent – admittedly down from 13.5 per cent the year before, but still outperforming commercial property (which according to IPD was showing a negative annualised return at that date). Good returns should continue for the
52 MARCH 2012 PROPERTYdrum
future, given the forecasted five per cent growth in rents next year. That’s particularly the case in London,
where returns on student housing doubled in 2011, according to Knight Frank, from 8.4 per cent to 15.1 per cent. In the current economic environment,
that’s an amazing return. In the regions, though returns fell, they stayed over ten per cent, again a great return compared to the property market as a whole. It’s difficult to compare residential property over that period, but considering rental yields are only around 4-5 per cent and the Halifax house price index fell 2.3 per cent in the year to the end of September, student
accommodation clearly outperformed. You can get an idea of expectations for
the sector from the annual report of Unite, a publicly quoted investor in student accommodation. It says it targets “low double digit total returns, with modest risk” – where else could you get that in today’s market? This outperformance has been driven
largely by an increase in student numbers at UK universities. University applications rose 34 per cent between 2005 and 2010, and full time student numbers rose from not quite 1.2m in 1997-8 to 1.6m in 2010. That demand comes both from domestic students, and from international students
Investors are particularly attracted to the inflation hedging characteristics of the sector.”JENNET SIEBRITS CB RICHARD ELLIS
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