The UK saw fundamental changes in the funding of higher education in the 2011-12 academic year, with significant increases in student tuition fees. Applications for the 2013-14 year are currently 2.5% above their level at the same point last year but remain 5.4% below their pre-tuition fee levels of 2011-12.

However, demand from outside of Europe has remained strong and continued to grow during this period. The UK market is already the biggest beneficiary of overseas students in Europe. In the next decade, some 30,000 more international students are expected to join university courses in the UK, second only to Australia, but more than the United States.

Overall, it does not appear that these changes have adversely affected the student housing sector. The underlying lack of supply has sustained investment returns. Student housing in the UK is unique in a European context in the significant amount of private investment it has seen in recent years. It is now considered a maturing sector, and has performed well over the last five years, outperforming many commercial property asset classes. Investment funds are beginning to fill the debt gap left by banks and have secured loan with operators such as Unite, iQ and Nido.

London continues to be a significant focus for investment, given the underlying supply-demand dynamics of that market. London’s student population is the highest in Europe. Student rents in London (along with residential rents generally) continue to grow. Purpose-built student housing delivery historically has fallen short of the city’s student housing requirement.

While the London market offers many opportunities, there are risks, with quotas on visas for overseas students and on the supply side, pressure from the Mayor to disperse the development of student accommodation away from central London boroughs in order to regenerate other London economies. This may put a strain on viability as land economics become more difficult away from the core.

As the pressure to fulfil demand for student places increases, universities with ageing accommodation may engage in stock transfer to private providers in order to generate capital receipts. This offers unprecedented opportunities for investors in high-quality university locations not otherwise available to them due to a lack of newly built supply.

Taken from
Spotlight: European Student Housing