Student accommodation holds its own in property market

Thursday, 28 May 2009 3:25 PM

Research has found the student accommodation sector is still attracting investors into the struggling property market.

Savills discovered rental growth and high occupancy rates continue to attract investors into the 'digs' sector, though the "limited availability of appropriate investment vehicles risks frustrating attempts by individual investors to benefit from the sector".

The average rents for Purpose-Built Student Housing (PBSH) grew by five per cent between 2007/2008 and 2008/2009, with growth of seven per cent seen in the capital. Demand for PBSH continued, despite the economic downturn, with undergraduate applications up by nine per cent for 2008/2009.

Savills also found in their research the number of new students was outpacing the new supply of accommodation, by a factor of ten nationally and 15 in London.

Jacqui Daly, director of Savills research, said: "High demand, low supply growth, rising rents and high occupancy rates make student accommodation an investment vehicle of choice during uncertain economic times, and suggest that the sector will remain relatively low risk for the foreseeable future.

"An underlying supply/demand imbalance point to a robust outlook for the sector, while the fundamental strengths of the business model mean that capital values have not fallen to the same degree as other commercial or residential real estate."

However, Savills said their research pointed to a real stumbling block in the student accommodation investment market, with the withdrawal of developer debt-funding in particular limiting the scope for investors to grow their interests. Because of this, demand will continue to rise, particularly in the capital, where Savills say "planning constraints are severely limiting the ability of operators to grow their portfolios and increase the level of new supply in the market".

Marcus Roberts, head of student housing at Savills, said: "Our forecast of ten years ago that student accommodation would be a counter-cyclical investment is proving to be accurate.

"The scope for individual investors to access this market is rather limited against a backdrop of constrained credit availability, particularly as lenders have tended very recently to tarnish student accommodation with the same brush as buy to let investments which have proven very much higher risk in the market downturn.

"There are, however, investment vehicles (for example, retail funds) which allow individual investors to invest indirectly in the sector.

"As credit becomes more available, however, we would expect to see investors exploiting the sector's potential. One such model would be the creation of clusters of student accommodation, which given rising demand and a frustrated supply channel, would offer a relatively secure investment model for the foreseeable future," Mr Roberts concluded.

Tags:
• uk property news