Investment in the UK student accommodation sector is set to reach £3.1 bn (€3.7 bn) in 2016, making it the second highest year on record, according to new research from Cushman & Wakefield.
The focus of investment over the year has been in the regions, with the proportion of transactions in London falling by approximately two thirds. The report says that this is likely to be due to the reluctance of investors to trade out of stock in the capital and their inability to replace with new developments. A further £0.25bn is under offer and £0.95bn is in the market which could yet transact before the New Year.
'The growth in student numbers, including those from overseas, continues at pace. We believe this is driving a ‘marketisation’ of the student accommodation sector as competition intensifies between universities with improvements in the teaching and infrastructure facilities and services provided to students,' commented Mike Mitchell, partner in Cushman & Wakefield’s Student Residential Investment team.
This year has seen 62 transactions take place at an average of £73.4k per bed space. As with 2015, portfolio transactions were the largest. The top transaction was GSA & GIC’s purchase of the ThreeSixty Portfolio for £430 mln. The second largest was Brookfield’s purchase of The Rose Portfolio for £420 mln.
Demand for student accommodation remains strong, the research shows, with more students in the system than ever before. 1.7m now study full-time, up 0.4% from the previous year, and are competing for rooms despite intense development drives.
The number of purpose-built beds has reached 568,000 – an increase of 5.4% on the previous year. Growth has predominantly come from the private sector with 21,400 new beds in 2016/17. Stock development continues to be driven by studios, which is the fastest growing room type in the private market, up 24% from 2015.
Rents in the sector have risen by an average of 2.7% as demand continues to outstrip supply.
'With over £1bn of potential investments currently queued for sale, 2017 will undoubtedly be another strong year for transactions. There are several overseas investors with unfulfilled requirements circling the market. This will undoubtedly act as a catalyst for further sales and consolidation into 2017 – especially as real estate investors increasingly turn to alternative assets such as student accommodation in search of returns unavailable elsewhere,' Mitchell added.
Reporting that the international (non-EU) student population now stands at 284,000, nearly one in five students, the research sounded a cautionary note with regard to Brexit.
'It is too early to assess what the full impact on EU students will be for the 2017 entry and longer term,' the report said. 'Universities are lobbying hard to ensure that any future immigration policy changes in the wake of Brexit does not restrict the mobility of students', it concluded.
