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Student accommodation drives toward record £6bn investment

  • Universities using modern, high-quality accommodation to attract student numbers

  • Investment transactions in 2015 up 67% on 2014’s £2.7bn

  • Purpose-built bed spaces increase by 19,300 in 2015 to more than 539,200

  • Studio bed spaces increase by 41% on last year

Investment in the UK student accommodation sector has soared to a record £4.5bn in 2015 and could reach £6bn by the end of the year, according to analysis by Cushman & Wakefield.

Portfolio sales have driven investment activity far beyond the £2.7bn registered in 2014, with sales triggered by a range of factors including distress, profit taking and portfolio reconstruction. The most significant portfolio deal was Canada Pension Plan Investment Board’s £1.1bn purchase of the 16,748 bed Brandeaux / Liberty Living Portfolio. International capital has accounted for 82% of all transactions.

In a report into the purpose built student accommodation (PBSA) sector, Cushman & Wakefield suggests that underlying demand remains strong, due to student numbers reaching record highs. This demand is coupled with students having increasingly high expectations of the quality of accommodation on offer.

Mike Mitchell, a Senior Investment Director in Cushman & Wakefield’s education team, said: “This has been a ground breaking year for the UK student accommodation sector. It is thriving, with liquidity driving investment volumes higher than ever before.

“Universities are operating in an increasing competitive market and recruiting students to secure fee income is now a primary focus. Residential facilities play a crucial role in attracting students, now subject to £9,000 a year tuition fees, who have decided they should have a quality residential experience that supports their academic and social experience.”

The supply of student accommodation has grown sharply. The Cushman & Wakefield UK Student Accommodation Tracker records a peak of more than 539,200 purpose-built bed spaces in 2015, an increase of 19,300 on 2014. Studio bed spaces have been a noticeably fast area of growth, up 41% on last year. Cushman & Wakefield expects room numbers to continue to grow apace due to the large pipeline of private sector planning applications and approvals across the sector.

In total there are now more than 200 private operators in the PBSA market although the top 10 account for nearly two-thirds of total bed spaces (62%). Unite is by far the largest player with more than double the rooms of closest competitor Liberty Living (42,000 vs 19,000).

Rents in the sector have risen by an average of 6%, which again suggests undersupply in the market. There are noticeable differentials in rent changes. Privately supplied stock rent has increased by 7%, while that provided by universities rose by 3%.  Meanwhile, studio rents in the private sector are up by 3%, while cluster flats have achieved an average 6% increase on 2014.

Mike Mitchell added: “Investors are attracted by buoyant student demand and real rental growth and as such we expect supply of bed spaces to increase further in 2016. Similarly, there are a number of new entrant investors that have missed out on portfolios this year and are still seeking investment opportunities in this space. As such, we expect to see at least one new investor entrant to the UK market in 2016.

“We see the university arms race for recruitment continuing, with heavy expenditure on infrastructure and marketing, unconditional offers and other incentives being used to gain more market share.”