Student accommodation investment has become increasingly popular in recent years. With strong demand from a growing student population and limited supply, student housing presents an attractive investment opportunity. This article will analyze the key factors driving growth in the UK student accommodation market, including rising student numbers, constrained supply of purpose-built accommodations, and resilient rental income and occupancy rates. It will also examine investment risks and considerations for different types of investors.
Student numbers continuing to rise steadily in the UK
The UK remains a top global study destination, with over 2.7 million students enrolled in higher education in 2020/21. International student numbers have grown rapidly, up over 11% from 2019/20 despite the pandemic. Domestic student numbers also remain robust. The total addressable market for investors is substantial, with around 40% of students estimated to require private rental accommodation.
Development struggling to keep pace amid attractive returns
Purpose-built student accommodation development has accelerated, but remains well below the level of demand growth. Rental yields for student housing averaged 6% in 2021 across prime UK university towns and cities, much higher than yields for mainstream residential. Positive letting activity and resilient occupancy rates through the pandemic further underscore the defensive nature of purpose-built accommodation.
Large operators consolidating amid influx of institutional capital
The student accommodation sector is seeing growing investment from institutional players like pension funds and sovereign wealth funds. Larger operators are expanding their portfolios by acquiring smaller providers. Most recently, Blackstone acquired a majority stake in UK student housing provider IQ in a £4.7 billion deal. Industry consolidation and institutionally-backed providers can give added confidence to investors seeking scale and stability.
Smaller cities and towns offer higher returns but more risk
Investment activity is picking up sharply in smaller university cities like Lincoln, Sunderland and Chester as returns remain attractive and development economics work. However, smaller markets bring more volatility in rents and occupancy. Leading operators advise targeting larger, more established university towns first before venturing into higher-risk smaller markets.
In summary, purpose-built student accommodation in university towns across the UK continues to deliver stable cash flows with the potential for capital growth amid rising demand and constrained supply. However, investors must carefully assess location-specific factors, align with experienced operators, and maintain realistic return expectations given emerging risks.