Student Accommodation Comes of Age (Property Week)

By Doug Morrison

Property Week and Unite’s student accommodation conference highlights supply-demand imbalance

Last month Unite Group, the UK’s biggest developer and manager of student accommodation, raised £21.5m from the sale and leaseback of a 395-bed block in Bristol to M&G Secured Property Income Fund.

The sale price reflected a net initial yield of 6.07%. It also reflected the growing institutional interest in student accommodation as an asset class in its own right and not just the preserve of specialist investors.

Just two months earlier, a 6.75% net initial yield was achieved in Bournemouth when another mainstream fund, Aberdeen Property Investors, paid Cordea Savills Student Hall Fund £20.1m for a 519-room block, as revealed by Property Week (residential, 04.09.09).

This rapid yield shift in student accommodation has caused a stir in investor circles and partly explains the bumper turnout last month in London for Property Week’s second annual student accommodation conference, hosted with Unite.

As Knight Frank partner James Pullan told the 350 delegates — three times last year’s attendance — investment in the sector has reached “critical momentum” following M&G’s Bristol buy.

Much of the investor appetite comes down to supply and demand. Student numbers are growing against a shortage of accommodation — and the purpose-built halls can be a selling point as academically similar universities compete for the first-year intake and cash-rich overseas students in particular.

Pullan said the imbalance has resulted in near 100% occupancies and average rental growth of 5% a year over the last six years, compared with 0.6% in commercial property.

“A block 200 metres in the wrong direction can be a non-starter”

Dennis Hopper, Leeds University

Rental growth has topped 10% for 2009 in some towns, although Pullan echoed a widespread conference sentiment that this is unsustainable.

A slowdown in rental growth — 3%-5% was the consensus for the coming year — suggests a pause for breath as the market matures and tough economic conditions force students — or their parents — to seek value for money.

Pullan also referred to the “indigestion” endured by cities such as Sheffield, where 3,254 student rooms were completed in one year alone.

Even in Leeds, which is popular with investors and students alike, there are pockets of oversupply.

Dennis Hopper, Leeds University’s facilities management director, told delegates how a block “200 metres in the wrong direction” can be a non-starter for 80% of students who want to live on or near campus. “It’s that sensitive,” he said.

Just like other property sectors, it seems, location counts for everything with the tenants. (Doug Morrison, Property Week)

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