INVESTMENT
attracted by the reputation of major UK universities – the UK has five of the world’s top 20 universities (with the US taking many of the other prime positions), and a fifth of all enrolments are of international students, mainly from outside the EU. Yet despite this increase in numbers, supply has remained tight. Savills, in its Autumn 2011 spotlight on student housing, says that, “The dramatic 20 per cent increase in student numbers over the last ten years has left most higher education establishments short of accommodation,” though of course that varies from university to university, and from city to city. University managed accommodation
accounts for only a fifth of students; the rest have to look elsewhere, and while some live with parents or (mainly mature students) in their own place, for most that will mean the private rented market.
With parents Own residence
WHERE DO STUDENTS LIVE? London Regions 24%
19%
University managed accommodation Remainder
20% 17% 20% 19% 36% 45%
According to Jennet Siebrits, many university-owned halls haven’t been updated since the early 1990s, and there has been no publicly funded development of housing for students in the last decade. That has created a structural undersupply of purpose-built student accommodation, which is only gradually being chipped away. Savills believes that even taking into
account new developments in the pipeline, London will see a shortage of 23,000 beds by 2014. With mushrooming student numbers and only very slowly increasing supply, rents have been pushed up over the last few years. James Pullen says “rental growth remains robust”; according to Knight Frank’s figures, student property saw rents grow by an annual average of five per cent from 2004-2010, against just 0.6 per cent growth in commercial rents.
A MATURING ASSET CLASS
Most participants in the sector expect that to continue; for instance Unite expects rental growth of three to four per cent in its portfolio in the next few years. Yields are strong, too; despite some recent yield compression, student accommodation still comfortably outperforms ‘regular’ residential property.
As an asset class, the student accommodation sector is
maturing well.’ JAMES PULLEN HEAD OF STUDENT PROPERTY
NET YIELDS Central Top Second London tier
tier Direct let
University long term RPI lease
Nominations agreement
6.0% 6.5% 7.0% 5.25% 5.75% 6.0%
6.0% 6.25% 6.75%
Average rent £14,313 £5,989 - (all regional)
Comparison: ‘regular’ residential yield 4.6% 5.3% Source: CB Richard Ellis, Knight Frank, LSL
- Strong yields have attracted institutional
investment; unlike most residential property, where small unit size has made it difficult for institutions to achieve scale, the hall of residence model allows institutions to invest significant funds. While in the early 90s, typical student
accommodation investors were parents buying houses or flats that their offspring could use as student accommodation and which could then either generate a capital return, or be held for long term rental revenue; the balance has now swung towards institutions investing in larger blocks through management companies. According to Knight Frank, “as an asset
class, the student accommodation sector is maturing;” a single purpose-built block can produce significant cash flows, and offers a scale of investment that suits institutional investors better than putting money into single flats. That’s particularly true where the university has a long term arrangement with the private company, whether that’s an RPI-related lease or a nominations agreement, as this delivers the type of long- term income stream that institutional investors prefer. Leaders in the sector are the University
Knight Frank’s Student Property report highlights the tremendous growth in rents.
Partnerships Programme (UPP), with 11 partners and a tie-in with Barclays Infrastructure funds; Unite Group, which owns 40,000 beds in 24 different towns and cities; Liberty Living, with 15,000 beds; and Opal (20,000 rooms). They’ve been there a while, but now
private equity funds like Oaktree Capital and Carlyle Group are investing in student digs, as well as some contractors, trying to fill the gap left by the demise of residential development.
INSTITUTIONAL INTEREST
Private sector halls still account for a minority of student accommodation, but it is rapidly growing. Savills suggests lack of funding will force many universities to transfer ownership of non-core assets such as accommodation to the private sector. That move has already started. Fund
manager Legal & General recently paid £116m for Griffon Studios, an Imperial College hall of residence with 452
PROPERTYdrum MARCH 2012 53
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