Student housing market to develop as investment doubles

Planned changes to the REIT regime and growth in the number of operators will relieve a shortage of options for UK student accommodation investors, according to CBRE.

In a note published this week, head of student housing advisory Jo Winchester said institutional investors would continue to target long-dated or de-risked income. However, she forecast a broader range of routes to market, including the ‘income strip’ model whereby an investor leases the scheme for a fixed period but the freehold remains with the university owner.

Her comments follow the publication of figures showing investment in the student accommodation sector increased to £800m (€1.01bn) in the first half of 2012, up from £375m during the same period last year.

Although most institutional investors will continue to seek out indirect exposure to the sector via funds, insurers will increasingly look to debt investments, notably forward-funding deals, Winchester said. She cited M&G Investment’s financing of the Nido platform and the IQ student accommodation fund, and Aviva’s loan to University Partnership Programme (UPP).

The report claimed management operations were key to investment in the sector, citing PGGM’s acquisition of a majority interest in student housing firm UPP – although new and small-scale operators would struggle to access capital without forging partnerships with potential investors.

“The growth in the number of specialist operators is proof of the business opportunity afforded by the sector and of a maturing market, with increased competition and choice,” Winchester said. “Overall, the outlook for rental growth is positive; direct yields are stable, and trending stronger for long-leased properties.”

Specifically, the London student housing market will continue to hold up with increased rents, despite the possibility of localised reductions in student numbers outside the capital.

Bouwfonds REIM has described the European student housing market as an “underexposed attractive investment category that deserves more attention”, claiming an increase in cross-border student mobility will continue to drive demand.

In a report published this week, the fund manager cited as investable characteristics “a clear lack of supply”, as well as the sector’s anti-cyclicality, secure rental income and above-residential yields.

“Housing is a basic need for all students, but in most European university cities there is a clear shortage of modern and affordable student rooms. New purpose built supply will be insufficient to meet future demand resulting in rental growth,” said the report.

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