Savills has released its summer 2012 research paper on the UK student accommodation sector. It certainly confirms that the sector has much to offer investors who are looking for a secure income stream. The report is summarised below;
Summary of Summer 2012 research paper
Student housing may be considered a maturing sector but it has performed well over the last five years, showing average annual total returns outperforming many commercial property asset classes.
Not surprisingly, demand from investors for high quality stock in safe locations has been increasing in the light of this performance along with the number of equity investors looking for sound, long term income streams. We anticipate this will continue for the rest of the year at least.
In the longer term, we see prospects for increased investor demand with investment yields moving in for long dated income streams. Meanwhile, the demand-supply imbalance in the sector should ensure rental growth.
The prospects for additional demand to UK institutions from overseas students are good, at a time when global student mobility is increasing, together with a doubling of higher education students to 262 million by 2025, provided UK immigration policy allows for this growth.
Supply growth is severely constrained despite a relatively healthy flow of development activity during the downturn in prime locations.
The market will remain under supplied at current levels in relation to both the growth in student numbers and latent demand from students currently housed outside the sector, as banks disappear from the debt and development markets.
Increasing risk aversion, combined with scarce availability of senior debt for construction finance, correlated against a period where there is a need to refinance a number of significant maturing five year loans will allow opportunistic investment from globally mobile equity providers looking for secure, long dated income streams and to diversify portfolios.
There is a strong likelihood that universities will increasingly seek to avoid calls on capital and revenue arising from their own ageing accommodation and will look to generate capital receipts (and improvements to their accommodation) from investors through stock transfer.
This offers unprecedented opportunities for investors in high-quality university
locations not otherwise available to them due to lack of newly built supply.
