UK student property investment
UK student property investment is attracting glowing reports and huge interest from investors that can be seen in its best in class growth. In just the first five months of the year, investment levels rose 70% year-on-year and sector experts are describing it as a “must-have asset class” – definitely worth an ‘A’ for its performance and potential.
Its figures are impressive. In 2014, investment in the purpose-built student accommodation market reached £2.45billion of assets traded, which was up almost a quarter on 2013 levels. But in just the five months of 2015, £4.2billion have been invested on both a standing investment and site acquisition basis, to reach a record high that is 70% above last year’s level and 40% above the previous peak in 2012.
By the end of the year, total investment is set to reach £5.5billion, so it’s no wonder that developers are desperate for a slice of the market, particularly in provincial university towns and cities, where returns are likely to be higher. Global developer, retailer and property investment specialist, Select Property, which operates the Vita Student brand, says investors can achieve total returns of up to 9% this year, with even yields likely higher outside of the London area.
As the sector has matured, the bulk of investment activity has shifted from UK owner-operators and private equity and institutions to global institutional investors. There is an on-going emphasis on quality accommodation and service in the sector, according to Select Property. Neal Hudson, from Savills Research, which has just produced its 2015 Spotlight on UK Student Housing agrees. “Following on from our analysis last year, the introduction of higher fees appears to have sustained a flight to quality. Falls in student numbers are typically highest in lower ranking universities, while higher ranking universities have generally seen an increase in domestic and foreign students.”
Director, Giles Beswick of Select Property Group, which previously has teamed up with Savills to market its properties to investors in Thailand and elsewhere in Asia, confirms that interest from international investors is rising. “We work with investors in 117 countries so a lot of our investors are from overseas or expats based in foreign territories. We appeal to investors who are looking for fully managed investments that extend their capital growth and return a regular rental yield, but require no direct involvement or management from them. Historically we’ve worked with a lot of Middle Eastern, South and East Asian investors which is still true, but in recent years we’ve seen a growing number of African investors looking at our portfolio,” he said.
Without doubt, regional UK demand taking off at the moment. As property prices continue to rise in London and investments in the city offer lower returns, investors are now looking at alternative options to the capital. “We’re getting a lot of attention for our Manchester sites particularly for both our student and residential developments. The city is being backed by the new Conservative government to become the Power House of the North and our operational developments in the city are showing higher than expected yield return.”
Select Properties has just bought two prime city centre sites in York and Glasgow – which it is calling its most exciting project to date – for student accommodation projects valued at £140million and is building 969 self-contained studios that will be developed, let and managed under the Vita Student name. It already has student projects in Bristol, Exeter, Manchester, Liverpool, Southampton, Sheffield, and Newcastle.
Finding the best location, close to universities, transportation and major amenities, is important to students using the accommodation. “We develop, sell, manage and as such control the full lifecycle of our property investment brands. It is imperative that the experience for our end user customers is as excellent as it can be, and location is key to this, particularly for our students who are often new to the city, and indeed the country. Creating a sense of home and being in walking distance from where they want to be is essential. Happy tenants equal healthy returns for our investors.
“When creating a home for customers at our Vita Student residences location is one of the fundamental considerations and we have a dedicated team that is constantly sourcing the right sites for our next sites,” explains Mr Beswick.
“Modern day students are becoming more discerning. Paying thousands of pounds a year for their education, they are far more focused than previously and want to live in environments that are conducive to both studying and socialising so we only see the demand for our experience-led student accommodation continuing to soar in the coming years.”
The 6.3acre location in York, Vita Student’s first student village, is at St Joseph’s Convent on Lawrence Street, within walking distance of the University of York and city centre. The convent will be refurbished and converted and an additional 14 three and four-storey buildings will be constructed.
The 2.9 acre site in Glasgow is next to the University of Glasgow in the popular West End, which is currently undergoing a £1.2billion redevelopment.
Mark Stott, Chief Executive Officer of Select Property Group, said the purchase of both sites is a major milestone for the business. “Glasgow is Scotland’s largest city and houses six universities which attract an international market of more than 80,000 students as one of Europe’s most popular places to study. With year-on-year rental rates rising by 1.6 per cent in April, our new Vita Student development presents a compelling proposition for students and investors alike.
“Similarly, the York site presents a unique opportunity to deliver distinctive, high quality accommodation in this popular student city. Its proximity to both the city centre and University of York has made it an optimum location we’ve been keen to secure for some time.
“Our revolutionary end-to-end service means that we develop, let and manage our properties, ensuring the best possible service for customers. Glasgow and York are both ideal additions to our existing portfolio of more than 1000 student beds across leading university towns and cities throughout the UK.”
Looking ahead, the UK purpose-built student accommodation sector looks set to continue its strong growth. Student numbers are recovering and are set to increase further, creating more need for accommodation. The only issue is finding good quality sites.
“We expect the ‘flight to quality’ to continue with higher ranking institutions benefiting most (subject to their expansion plans),” says Savills.
“Perhaps the biggest barrier to its continuation will be sourcing opportunities for investment. As competition increases with more actual and potential investors from across the globe looking at the sector, it is likely that we will see further compression in yields.”
It seems the biggest risks to the sector are political. The rhetoric around migration is unhelpful and the risks arising from an EU referendum are apparent. “Policy makers should acknowledge the important role that higher education students play in both local and national economies. Students also have a major impact on local housing markets. The provision of more student accommodation can play a role in solving the housing crisis and should be considered as part of a larger solution.”