How did student property investment become a £2 billion industry in just 3 years?

on Mar 11, 2015
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Returns on investment within the alternative UK property sectors have been steadily climbing since 2012, with The Wall Street Journal detailing highs of 13.9%* at the end of last year.

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Traditionally, commercial property investment has centred on retail, office and industrial spaces but in the past three years there has been a significant shift towards student property, and the once-niche asset class is now a £2 billion** industry.

The government decision to remove the cap on university student numbers was the catalyst for this rapid growth.

In August 2014, a record breaking 396,990 UK students were accepted into universities according to UCAS, the organisation in charge of admissions. The high demand led to an additional 30,000 places being made available, and if forecasts are correct, 60,000 more students will enter the system in 2016 – already, UCAS had received 600,000 university applications for these places before January.

Property developers across the country are fast building purpose built accommodation in response to the UK’s growing student population and the demand it is producing but the issue of undersupply does still remain.

An influx of investors vying for limited student property means that the sector is competitive, yet unlike the traditional commercial and residential classes, the student property market is not concentrated to London, thus those looking to buy are able to extend the reach of their location search.

Regional university cities are hugely popular in the UK, including Bath, Edinburgh and Leeds, because they boast world-class educational establishments that are popular with domestic and international students.

Where similarities do exist between the student and wider property markets is in the interest the sector receives from international investors, particularly those in India.

In January 2015, legislation changes were made to increase overseas real estate thresholds per individual, per year. The rental sector in India produces minimal returns for investors thus more are looking to the booming UK student accommodation market, which generates higher rental yields and better long term investment opportunities.

Now that the student property market has become mainstream, investors are increasingly buying new builds off-plan, with developers promising swift September completion dates ready for the stream of students entering higher education in 2015 and 2016.

One of the most noticeable changes in the type of buildings currently in development is the move towards luxury student accommodation. This emerging trend is driven by higher tenant living standards, particularly from international students, whose expectations are similar to those of professionals.

By replacing the idea of the archetypal budget-conscious student with a wealthier one that expects quality accommodation and premium amenities, buyers can make investment choices that will appeal to this lucrative market, potentially leading to even larger rental yields for property owners now and in the years to come.

* The Wall Street Journal, 2015. Greystar to Buy UK Student-Housing Portfolio. [Online] Available at: http://www.wsj.com/articles/greystar-to-buy-u-k-student-housing-portfolio-1425859405.
** LD Events, 2015. Why Student Property Investment is Moving into the Mainstream. [Online] Available at: http://www.ldevents.net/news/why-student-property-investment-moving-mainstream/.
[Accessed 10th March 2015].

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