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Top student investment locations unveiled

Tuesday 16th July 2013

We all know that some attractively high rental returns are achievable for those investing in the student property market, but what are the best areas to invest in?

A new report published by Savills has identified the top markets for student investors, albeit competition in some markets – particularly for other land uses – will make it tough to identify opportunities. 

Just nine universities – including London - make the top grade for investors (see table below).  Details of how the ranking was calculated in the release below.

Best in class student housing offers good returns

The student housing market has been a resilient and stable investment during the downturn and that is forecast to continue, despite pressures on student demand due to increased tuition fees and threats to international student numbers through tougher visa controls, according to new analysis from international real estate adviser, Savills. 

Following weaker rents during the 2012-13 academic year, Savills forecasts total returns of 9.3% for the 2013-14 year with static blended net initial yields at 6.3% and rental growth of 3% due to improving demand and restricted supply coming through.

“We are confident that student housing will continue to prove a counter-cyclical investment, but the market is not without its risks,” says Marcus Roberts, Savills head of student investment.  “Investors should consider investments on an institution by institution basis, remaining mindful of the city supply where there are multiple universities. 

“Some cities will have reached maturation relative to student numbers, while some universities will be more susceptible mid term to fee increases.  Over and above demand as defined by student numbers, university rankings are normally the first reference point for prospective students and a good indicator of investment risk.”

Applicant numbers are an early indication of student demand and while the increase in tuition fees up to a maximum of £9,000 per annum triggered a 6.7% fall in applications for the current academic year, numbers are up by 2.7% for the 2013-14 year. 

However, demand from outside Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5% over the last six years. Figures released by UCAS show a 9.9% increase in number of students applying to UK universities from China and a 19.3 per cent on those from India, suggesting that while recent student visa reforms have tackled abuse, students are not put off studying in the UK’s universities.

The ability to attract the most able, internationally mobile students is vitally important to the standing of the UK’s best universities on a world stage.  Any government policy targeting a reduction in net immigration should take care to differentiate between those students attending accredited universities and those attending less well regulated educational establishments.

The Savills Student City Monitor is a combined measure of demand, student demographic, university academic rank and financial health, affordability of local rental market and the supply of purpose built accommodation.

Ranked from ‘First’ through to ‘Pass’, just nine universities make the top grade, all well known for academic achievement, strong international demand or undersupplied and relatively unaffordable local housing markets. The London market in particular will present opportunities based on the affordability measure, with private rents forecast to continue to rise, further stretching affordability and driving demand.

First

Upper Second

Lower Second

Third

Pass

Bath

Aberdeen

Aberystwyth

Bradford

Bolton

Brighton

Birmingham

Bangor

Cheltenham

Carlisle

Bristol

Bournemouth

Belfast

Coleraine

Derby

Cambridge

Canterbury

Chester

Hatfield

Farnham

Cardiff

Chichester

Colchester

Huddersfield

Lampeter

Edinburgh

Durham

Coventry

Hull

Lancaster

London

Exeter

Dundee

Keele

Middlesbrough

Oxford

Glasgow

Egham

Leeds

Newport

St Andrews

Kingston-u-Thames

Falmouth

Lincoln

Ormskirk

 

Liverpool

Guildford

Loughborough

Paisley

 

Manchester

High Wycombe

Luton

Pontypridd

 

Newcastle-u-Tyne

Leicester

Salford

Preston

 

Portsmouth

Northampton

Sunderland

Stoke on Trent

 

Sheffield

Norwich

Swansea

Telford

 

Southampton

Nottingham

Winchester

Twickenham

 

York

Plymouth

 

Uxbridge

   

Reading

 

Worcester

   

Stirling

 

Wrexham

The Community Infrastructure Levy, which is effectively a tax on new development, is an emerging risk for the student sector. Across the UK, Developers of student housing have not typically had to provide affordable housing under Section 106 agreements, however this is creeping in within London which is causing viability issues. However, potential CIL costs as charged per square metre of new floor space in addition to potential S106 contributions, will make many new schemes unviable.

“The provision of good quality, well-managed accommodation is key to an institution’s ability to attract top class students,” says Roberts. “We are now working closely with developers and housebuilders across the country in an effort to ensure that emerging CIL rates do not impact significantly on the viability of the student housing market.”

              

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