Brexit fears appear to have had little impact on investment in student accommodation in the UK with levels increasing by 17% this year, according to Savills.
Applications for study places in universities have fallen by 5%from students in Britain and by 7% from those in the European Union. However, £5.3bn is expected to be sunk into purpose-built student accommodation in 2017, compared to £4.5bn last year and a record £6bn in 2015. The University of Lincoln however has bucked the trend increasing demand for study spaces and an increase of 9% in student population compared to last year.
The accommodation investment sector was particularly boosted by international investors, who increased their market share to 64% last year from just 35% in 2015.
The referendum has appeared to have little impact on the investment levels, and the value of the industry was in fact higher in the six months after the referendum than before, with £2.1bn flowing in during the second half of 2016, compared to £1.9bn before.
This asset class is particularly favoured by investors from the Far East. The hike in international investment was due in part to the an influx of money from countries such as Singapore, such as from the country’s sovereign wealth fund GIC and real estate developer Mapletree, which spent almost £1.2bn on UK student housing between them last year.
The sector was particularly popular among those in Asia because “UK higher education is tangible for them and they can get their head around it easily”. – James Hanmer of Savills
“Their continued investment in 2016 is a massive vote of confidence in the sector.” – Jacqui Daly, director of Savills’ investment research and strategy
Because of the yearly tenancies it usually has strong rental growth year-on-year, and it is countercyclical, making it a good hedge against other risks
Rental income in the student accommodation sector have risen by an average of 2.7%, according to Cushman & Wakefield.
There are worries that foreign students will not be separated from UK immigration targets, which would be a blow to the sector. Savills has calculated that if students are exempt numbers will rise 6%.
The report highlighted Exeter, Guildford and Leeds and Lincoln as good areas to invest in, due to low levels of supply and the universities’ success in attracting new students. Liverpool slipped down in the rankings due to worries of oversupply.
The average weekly rent of a room in a student accommodation block is £126, according to Knight Frank, rising to £180 in Oxford and £200 in Guildford while Lincoln saw one of the highest growth periods in the sector with average rents at £112; providing extremely strong yields due to low property prices in the East Midlands.
