Knight Frank Student Property Review 2010
Date : 23 November 2009
Highlights
- Rental growth in the student accommodation sector remains robust, recording growth of 5% per annum over the last six years, compared to 0.6% for commercial property. Substantially higher growth was achieved in key university towns over the last academic year.
- Demand for university places continues to rise. Preliminary figures suggest a further increase in demand for places in the 2010/11 academic year, with UCAS reporting a 12% rise in applications at its October deadline.
- As an asset class, the student accommodation sector is maturing and becoming recognised as an important element of the wider property investment market. Since mid 2009, there been increased demand for secure income producing assets and demonstrable yield compression.
According to Knight Frank, early indicators for 2010-11 show that student rents will continue to rise by 5%, in the ensuite market, and high-end studios, particularly those in London, will remain static without any falls.
This compares favourably to other commercial rents, highlighting the student accommodation sectors resilience to the downturn.
So why has this sector remained so resilient?
Student numbers have continued to rise and the total number of people in higher education has grown from 1.8million in 1996-7 to almost 2.4million in the academic year 2009-20010, reflecting an annual growth rate of over 2.5% per annum, and this is forecast to continue rising. The majority of key University towns reported nearly 100% occupancy in halls last year.
This growth has been significantly influenced by a rise in overseas students which is predicted to rise more in the next academic year – in October 2009 UCAS had recorded a 16.6% increase in foreign applicants – with the number of applications from the Republic of Ireland up by 43% and a 27% increase recorded from Chinese students.
Another key growth segment for operators of private halls is postgraduates. Both groups tend to favour the professionally managed sector and are less price sensitive than other student categories. In 1997 these groups accounted for 11% (international) and 21% (postgraduates) of all students. Over the following ten years these proportions increased to 15% and 24% respectively.
Yet, supply of new student accommodation remains limited and existing supply levels mean the vast majority of students do not have the option of a privately operated room. Only 26% of London’s higher education students are able to access halls, with only 3% having access to the private sector halls.
Also, many regional cities still do not have a good mix of different types of accommodation so there is an opportunity here.
Student rents have continued to rise, growing by an average of 5% per annum over the six years to 2008-09, significantly more than other commercial property asset classes which averaged 0.6%. In the last academic year 2008-09 to 2009-10 this rise has been even greater, as illustrated in Figure 3 (in full report). Regional rental growth for this period showed rises of as much as 13% in student rents in Bristol, Leeds and Liverpool, 12% rises in Nottingham, 11% in Cardiff and Leicester, 10% in Edinburgh and London, Birmingham and 9% in Manchester and 7% in Newcastle.
The substantial falls in land values since the peak of the market places equity rich developers in an advantageous position when considering investing in this undersupplied sector. There is still a willingness by the banks to lend at around 60-65% on student projects, which is good when compared to lending on other property classes and increasingly there is the opportunity to acquire sites in locations previously considered too expensive for student housing. The identification of the right location is essential for a student scheme to be a success.
Overall, other commercial sector investment yields have seen substantial compression in the last few months but the prime London student accommodation market has only witnessed the start of this compression for direct lets in the last two months which should in turn see capital values rise. This compression commenced due to a shortage of stock coupled with a relative increase in capital chasing such property, and the investment market is following this trend.
Knight Frank predicts a future growth in values with opportunities for well-located en suite cluster schemes in London and top university cities. Given the lack of product in the development pipeline, especially in the capital, there remain excellent prospects for resilient financial returns.
Tim Goddard, head of student property, Knight Frank concluded: “The underlying market fundamentals for the student property sector are positive, with supply restricted and strong demand underpinning rental growth. Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future. There is strong demand for high quality, income producing assets and it is anticipated this will continue with increased appetite from investors for direct let stock.”
For further information, please contact:
Tim Goddard, student property, Knight Frank, 07776470820
Tim.goddard@knightfrank.com
Tania McNally, residential development pr manager, Knight Frank, 020 7861 1068,
Tania.mcnally@knightfrank.com
Naomi Curtis, commercial senior pr manager, Knight Frank, 020 7861 1744, naomi.curtis@knightfrank.com
Ends
Notes to Editors
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner, Newmark Knight Frank, operate from 207 offices, in 43 countries, across six continents. More than 6,340 professionals handle in excess of US$886 billion (£594 billion) worth of commercial, agricultural and residential real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit www.knightfrank.com.