Student housing is still a lucrative sector in which to make real estate investments, with the latest Savills research on the market revealing total returns have been higher for student accommodation than many other types of commercial property. The firm pointed to a growing demand among investors for "high-quality stock in safe locations", however, it noted the pipeline for new student housing is "severely constrained". Looking ahead, Savills is anticipating a rising number of universities will seek outside investment to renovate accommodation blocks, or will sell off these assets and focus their funding elsewhere.
"This offers unprecedented opportunities for investors in high-quality university locations not otherwise available to them due to lack of newly-built supply," the report asserted. In terms of where in the UK to look for student accommodation investment opportunities, London remains one of the strongest markets, due to the massive undersupply of beds compared to the number of undergraduates living in the capital. Savills pointed out London's student population is now close to 290,000 and is increasing at an average of 9,000 people per year. According to its calculations and based on the pipeline for university accommodation development, new supply will only provide beds for around one-third of this additional demand.
Even with UCAS recording a 7.7 per cent fall in the number of university applications by May 2012, there is still not enough accommodation for the new intake of students, not to mention the second and third year scholars who are not guaranteed a bed in specialist housing. Therefore, Savills does not believe investors need to be overly concerned by the small drop in applicants for higher education courses. The performance of student property speaks for itself, with Knight Frank's data for 2011 indicating returns generated by university accommodation in London climbed from 8.4 per cent in September 2010 to 15.1 per cent a year later.
Average returns across the UK as a whole stood at 11.5 per cent and James Pullan, head of student property at Knight Frank, was confident this trend would continue, especially in the capital. At the time the research was published, he stated: "There is still strong and as yet unmet demand for properties [in London] offered to students for rents of less than GBP 200 per week, offering investors a good opportunity in the coming years."