EUROPE - Banks are pulling funding for student accommodation projects over fears the government will cut capital for speculative developments.

A survey of 22 European banks from consultancy EC Harris suggests a slow decline in UK public spending has significantly cut back the available public finance for student accommodation - in stark contrast to funding for the asset class this time last year.

As a result, student housing development projects are now in "great decline", the report says.

Neither of the major student accommodation groups in the UK - Unite Group or UPP - responded to requests for comment on the finding, though both groups have adopted funding models that avoid exclusive reliance on bank funding.

Pessimism over student accommodation comes amid a broader reluctance to lend to speculative investment in the UK, compared with lending to pre-let office and retail developments.

The report said: "Property loans in default remain a challenge for lenders, and the fear of adding to this distressed asset burden makes riskier projects less attractive."

Moreover, bank lenders increasingly expect more advanced developments to come with equity via joint-venture partnerships or mezzanine finance.

Meanwhile, German investors attending Expo cited the UK market as evidence of the potential for student accommodation as a permanent asset class and a credible, long-lease alternative to residential.

MPC Capital board member Alexander Betz said the fact student accommodation was decoupled from macroeconomic factors made it "exciting".

His comments came as German student accommodation specialist Youniq announced that the two companies planned to launch closed-end joint student accommodation funds before 2013.

Pulling together investors for an Expo panel on the asset class this week, Youniq quoted Corestate Capital chairman Ralph Winter, claiming the asset class had "definitely come of age".

Meanwhile, Savills Germany research head Matthias Pink reckoned that 51 of Germany's 180 campus towns offered attractive investment opportunities.