Student Accommodation

Overview

Top of the class – student housing outperforms the rest

• Student accommodation proves itself a recession-proof investment, outperforming all other traditional property assets.

• Student housing is one of the world’s fastest-growing investment asset classes, worth a staggering $200 billion. The popularity of student accommodation as an investment has boomed due to the high yields being achieved over the last few years – in the key markets of the UK and US these have outstripped that of buy to let, office, retail and industrial property rental markets.

• Demand is being fuelled by higher than ever university participation – on track to grow 47% by 2025 – and increasing numbers of students travelling overseas to study. New wealth in Asia has led to soaring levels of young people seeking an English-language education, with the US and UK the leading recipients of these students.

Although it has been established as an investment for more than a decade, student housing is a less understood asset class when compared to the more mainstream residential and commercial property sectors. With rising yields, minimal risk of oversupply and increased international activity in this sector, it is certainly an asset that is set to continue its emergence and gain even greater traction.

Student housing is one of the world’s fastest-growing asset classes, with a total market worth close to a staggering $200 billion. It’s big business in the UK, with more than £2 billion of investment from UK and overseas investors in the sector during 2014 alone. This has been bolstered by recent multi-million pound deals by groups such as Starwood Capital group.

According to The Mistoria Group, since 2011, student accommodation has outperformed all other traditional property assets and has been the strongest growing investment property market in the UK, as illustrated in the Asset Comparison Graph. It has also continued to be one of the most resilient investment sectors, with rental incomes and property values remaining stable, or increasing. Yields achieved in 2014 were 27% higher on average than the buy-to-let market, when viewed as a like for like comparison.

Over the last 10 years the number of people entering higher education has soared. According to the United Nations Educational, Scientific and Cultural Organisation, between 2000 and 2010, the percentage of adults worldwide who have received higher education rose from 19% to 29% and all estimates suggest that this growth will continue. The number of students around the globe enrolled in higher education is predicted to reach 263 million by 2025, up from 165 million in 2011 (OECD). Much of the demand is being fuelled by overseas students. The UK is now the second most popular country in the world, behind the US, for foreign students. The number of young people travelling outside of their home countries to study is growing at an annual rate of 6% and is expected to hit 8 million by 2025 – with the majority seeking an English-language education.

Consequently, most higher education establishments are already short of accommodation and oversupply in student housing is a rare phenomenon. Add to this average yields in the range of 7 to 8% and the appeal of student housing as an alternative investment is clear to see.

Traditionally university students were housed in barracks-like dormitories or halls of residence within the university complex. These were completely shared spaces with communal bathrooms and cafeterias.

As the number of people entering higher education increased during the 1960s, thanks to the post-war ‘baby boom’, there was a need for additional student housing. Some universities began investing in purpose-built off-campus buildings, while in many university towns and cities, the surge in demand led to an increasing number of private homes being purchased and converted into multi-occupancy student houses (also known as HiMOs). This became commonly known as ‘studentification’ and came to symbolise the displacement of family housing.

Purpose-built projects have grown in sophistication over the years to feature extra amenities such as private bathrooms, a recreation room or bar. However, in the most developed student housing markets – the UK and the US – there is now an expanding market for private luxury off-campus student residences. These more closely resemble a hotel, offering substantial facilities from gyms to cinemas and, of course, high-speed Internet connectivity.