Total returns for investors in September 2011 were highest in London, reversing the previous year’s trend and returning to the longer-term status quo where the returns in the capital outperform those in the rest of the UK according to our Student Property Accommodation Index.
Student property returns averaged 11.5% in September 2011. This is a slight easing from 13.5% in the previous year, but these returns continue to lead the market among commercial asset classes.
The Knight Frank Student Property Index shows that total returns for student property in London have nearly doubled. Returns in the capital climbed to 15.1% in September 2011, up from 8.4% in the previous year.
The growth in the capital has been fuelled by the particularly robust performance of the core market, and more specifically, accommodation with rents of less than £220 a week. This is also the rent bracket where rooms were filled most quickly, signalling a strong depth of demand. It is also worth noting that studio flats in London were effectively fully let. This was not the case in 2010, again underlining the demand for student accommodation in London.
The strength of the market in London is clearly demonstrated by the growth in average rents, which, as we predicted in last year’s report, rose strongly. The average rent for a studio rose to £278 a week, up from £257 last year. Students with an en-suite room paid an average of £210 a week, up from £192 in 2010/11, giving an average rise of 9.1%.
The picture for student accommodation in the regions is also robust. Although there was a slight easing in returns, they were still in double digits.
One notable feature of the regional market over the last year has been the rise in the number of post-graduate units which have been released into the market, illustrating the emphasis that developers are placing on quality and premium ranges.
Average rents for apartments and en-suite rooms in the regions rose by 4% and total returns are at 10.5%.
There has been a lot of focus on the new tuition fee regime which will see UK undergraduate students pay higher university tuition fees in England and Wales for the first time, with annual charges of £9,000 for many of the top universities.
However, we believe that this new regime will have little impact on the mainstream market, as there is still an acute undersupply of student accommodation in every core market in the UK. We forecast that rental growth will continue next year, showing 5% like-for-like growth in London and the regions – closer to the longer-term trend growth after a particularly strong year. We anticipate that total returns will exceed 12%.