There were approximately 367,000 students studying in London during the 2013-14 academic year according to HESA data. Of those, 77% were studying full time, 28% were from overseas and the majority of full-time students (75%) lived either at home or in the private rented sector. This figure was slightly down on the previous academic year (378,000) but by a similar percent as student numbers across the UK (-1.7%).

Looking ahead, it is likely that London will continue to be an attractive city for students from across the UK and around the world. However, there is the risk that prospective students will be put off by the cost of living in the capital.

The pressure on London’s housing stock is particularly acute. New housing supply has failed to meet required levels and so the pressure on living costs has continued to build post recession. House prices have risen by 46% and private sector rents by 19% over the last five years according to the ONS.

Other measures put rental growth even higher. With increased competition in the private rented sector from other household groups, purpose-built student housing plays an important and growing role in London’s housing market.

With 70,000 purpose-built beds in the capital (40,000 university managed and 30,000 privately managed), the sector houses around a quarter of London’s full-time students. With the pressure on London’s housing market expected to continue and student numbers likely to increase, the sector should be well placed to expand further. The current future supply pipeline contains over 20,000 beds with 10,000 currently under construction and expected to be completed this year and next. However, the number of beds expected to be completed post 2016 is much lower and it remains to be seen whether this reflects a lack of new development or a lag in sites coming through the planning system.

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^{Source: Savills Research}

Perhaps the biggest challenge for the sector in London is its capacity to expand beyond its current market. It predominately caters for first year and overseas students. Many recent developments have targeted premium rents and our analysis of the rental value distribution in the sector broadly compares to private rents for studios and one-bed flats.

As the distribution for other property sizes indicates, there is a substantial opportunity for the sector to expand into lower value markets and compete against the HMO sector. However, it will be an uphill struggle given the current values required to viably compete against other use classes.

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^{Source: Savills Research & Rightmove}