When it comes to the property market, an investment in knowledge really does pay the best interest. Low risk, high yields and fast returns are just several of the reasons luxury student housing has become the new essential investment for high net worth individuals, and one of the most competitive UK investments.
Many of Britain’s older generation will reminisce on sub-standard university halls with poorly functioning heating or hot water. Increased private sector involvement in the last decade has now dramatically altered this once Dickensian landscape. Cinemas and pools are being introduced as standard to accompany other now common features including concierges and gyms.
A driving factor in this growth is how university is funded. The increase in tuition fees has produced a powerful consumer culture that is impacting on how other parts of the student experience are run. Rather than resulting in a tightening of budgets as might be expected, it is producing the opposite effect – namely a rapid increase in student spending.
This could be the result of housing becoming a smaller share of overall living costs resulting in students being more willing to increase their expenditure on dwellings of higher quality, according to research by Knight Frank. Other studies indicate that students are also becoming more comfortable with the notion of debt, compiling accommodation loans with their original loans to worry about later. Whatever the reason, the money and demand for quality student accommodation is there and investors are competing to provide it.
Frank Knight research suggests that almost a fifth of students are willing to pay upwards of £160 a week for housing. In addition, 19 percent of Britain’s students arrive from overseas each year and these students represent a key target of this investment, as they search for a home away from home. Demand for UK university degrees has not slowed down either, with over 500,000 applications last year and 1.7m students currently in tertiary education, more than have ever been in university before.
The purpose-built student housing market is thought to be worth around £46bn, with around £5bn worth of new developments being completed each year. According to JLL’s own figures for 2017, for every £10 invested in the UK commercial property market, the student housing sector accounts for an astonishing £1 of it and Savills forecasts a 17 percent increase in investment in student housing for the year to come.
Due to the inelastic nature of the demand and the reliability of student finance, the market operates with something of an economic downturn. Its countercyclical nature means that the larger scale developments that offer more units are attracting the most interest and are proving to be the most reliable investment.
Reditum Capital has witnessed high-growth in the sector, funding multiple developments in the luxury student accommodation space. Increased demand from oversea students with high standards, coupled with high occupancy rates, is creating the possibility of earning great returns. With live products across Bath, Birmingham, Glasgow and Leicester, Britain’s University towns are becoming increasingly attractive locations for investors to consider.
In partnership with the Government of Singapore’s sovereign wealth fund, Unite Students recently bought all 3,000 of Aston University’s on-campus bedrooms for £227 million, in the biggest one-off purchase of student housing ever recorded. In fact, as far back as 2016, Sovereign-wealth funds have invested over 15 percent of their worldwide spending in student accommodation, a number that is continuing to rise.
Changing attitudes of students and the supply-demand defect has resulted in the emergence of investment ‘hotspots’ in the UK with private and institutional investors stepping in to meet the demand. The role of skilled financers in finding the right projects and heading them up with reliable developers is crucial.
The joint venture approach to development will provide investors with quick turnaround builds that are pain-free and hands-off. This is an attractive way to get in on the student housing game and to see serious returns on investment.