Student accommodation market
There was a record £2.7 billion invested in student accommodation in 2012, representing a 125% increase on 2011 (£1.2 billion) (source: CBRE). There were two large deals involving UPP and Nido – the UPP transaction, with an estimated value of £840 million, was the largest transaction of the year.
These volumes indicate the strength of the sector and the continued appetite for student accommodation to UK and international investors attracted by the stable annual income.
CBRE data shows that student housing is outperforming other asset classes by some margin, delivering 9.6% total returns in 2012. This compares to 4.4% for all offices and 2.2% for all retail over the same period.
Full-time student numbers
There has been steady year-on-year growth in student numbers over the long term, however for the first time in 14 years student numbers decreased in 2012.
The reduction was the result of changes to policy mechanisms, the impact of the low rate of deferrals in 2011 (prior to the first year of increased tuition fees) and cautious offer making behaviour of Universities.
These disruptions are thought to be temporary and we expect to see 25,000-30,000 more students in 2013/14.
The strength of UK Universities, with 30 Universities in the top 200 of the Times Higher
The London student market
London has three important characteristics that distinguish it from the wider UK market:
- A full-time student population (293,000) that is larger than the next five largest student markets combined
- A very low supply ratio. London’s Universities can only supply c. 30% of the bed spaces required to meet their accommodation ‘guarantee’ (all first year and international students) compared to a national average of c. 65%
- A large international student population (c. 80,000) with high accommodation requirements and expectations.
Rent and occupancy outlook
Demand: Increased applications for the 2013/14 have illustrated the demand for Higher Education. Applications increased by 3.5% year-on-year with Non-EU students up by 9.6% and 18-19 year old participation at an all-time high. There are likely to be over 190,000 unplaced applicants in September.
Supply: There will be an additional 9,500 new beds in the market for 2013/14, with around 4,090 of these beds in London and 5,400 within the regions, resulting in a net demand/supply movement of c.+18,000.
Rental Growth: Our portfolio is showing clear signs of strong occupancy for 2013/14 as a result of improved University application procedures and increased demand. Reservations were at 62% as of 5 March 2013, supportive of retail growth in line with recent years.