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CB Richard Ellis
Student Housing Investment
Almost £800 million was invested in UK student housing in the first half of this year, more than double the £375 million invested during the same period of 2011 according to the latest report from CB Richard Ellis. There are few bright spots surviving the latest wave of the crisis (namely the EU debt crisis) but despite the UK government raising tuition fees in our own austerity, student housing investment continues to go from strength to strength.
The UK higher education system continues to be heavily oversubscribed, with only 10 places for every 14 applicants. The number of places offered in 2011 was just 7.75% higher than that of 2007, but demand for places continues to grow far faster. Equally outpaced is student housing development, and therein lies the opportunity for investors.
With reported occupancy rates of 99 per cent or more in purpose built halls and a lack of supply in the private rented sector, rents for purpose built accommodation are expected to grow annually in most university cities at least in line with inflation, says the CBRE report.
According to the report insurance companies have been very active in funding deals in the sector motivated by the need to fund their annuity liabilities via low risk income streams. This has helped as many specialist lenders in the sector have sought to pull back this year. Recent examples include M&G Investments' £266m loan for the acquisition of the Nido platform and Legal & General's £121m 10-year deal to refinance a portfolio of UNITE Group's properties.
Jo Winchester, Head of Student Housing Advisory, CBRE, said: "The current lending market is dominated by large-scale loans against well-managed portfolios, but debt remains restricted for new entrants, single property deals and projects outside of London. Whilst they tend to prefer large transactions, insurance companies are able to fund direct let properties and still meet low risk criteria as their exposure is only based on a conservative percentage of valuation. "There is no shortage of investor demand, but the market is hampered by a shortage of new high quality development opportunities. Proposed changes to the REIT regime, together with the significant increase in the number of new operators in the last four years could widen opportunities for indirect investors by creating a greater choice of investment funds, as well as creating an alternative exit position for established operators."
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