The student accommodation sector saw around £1bn of transactions in the first of quarter of the year, largely made up of single asset sales.



The London agencies reported varying levels of investment in the first quarter from £975m reported by CBRE, £1bn by JLL (including joint ventures), and £1.28bn reported by Knight Frank (which includes JVs and forward funding deals).

Affordable accommodation seemed to grab investors’ interest with JLL highlighting 123 Fountainbridge in Edinburgh, purchased by Unite Students for £24m, reflecting a capital value of £72,500 per bedroom, and Emily Davies Halls of Residence in Southampton bought by Empiric for £10.6m, reflecting around £44,000 per bedroom as examples of budget buys.

Knight Frank’s first quarter research of transactions found 66% of assets were bought for sums below £25m.

“Product with affordably priced rents remain attractive to many of the consolidators in the market who see this price-sensitive target demographic to be fundamental to future investment performance in a relatively volatile macro economy,” said James Pullan, partner, head of student property, Knight Frank.


2017 activity

Looking back at 2017, CBRE reported £4.68bn of investment in the sector with portfolio sales representing 44% of this total. CBRE’s quarterly bulletin noted the acquiring investors of portfolios were mostly international capital in partnership with the UK’s major student housing operators.

Jo Winchester, head of student accommodation at CBRE, said: “Student accommodation continues to perform well, attracting large-scale investment from all types of investor, but with the market dominated by larger operator purchasers and portfolio sales.”

The last year has seen a consolidation of the larger operators seeking to operate at significant scale. CBRE’s operator league table showed that of the 290,000 bedspaces controlled by the top 24 operators, 45% were owned or controlled by four platforms: Unite Students, UPP, IQSA, and Liberty Living. On top of this, 80% were controlled by the top 10 platforms.


On the market

The year has begun with a strong start as two large portfolios were brought to the market offering investors the choice of luxury stock or a selection of affordable student accommodation.

JLL is marketing Mayflower on behalf of Unite, comprising 3,436 beds across 13 assets with a guide price believed to be around £200m. Knight Frank is advising Fusion on the sale of a four luxury student buildings comprising 1,850 and a guide price of offers over £232m.


Rental growth and yield forecast

Analysis of CBRE’s regular valuation data of 201 schemes and 58,883 bed spaces, showed a total return of 9.58% in the 12 months to 30 September 2017 and average rental growth of 2.98% nationally.

JLL predicts that direct let prime and inner London yields, currently at 4.25-4.50% and 4.75-5% respectively will strengthen, as will those on a 25-year FRI lease, currently at 3.5% and 3.75% respectively.

Direct let prime regional, secondary regional and other regional yields, currently at 5.25%-5.50%, 6% and 7%+ respectively, are forecast to remain stable. Yields for assets on a 25-year FRI lease in the regions are forecast to strengthen from their current position of 4%, 4.25% and 4.25% respectively.


Market challenges and opportunities

CBRE’s Winchester highlighted the ongoing concern around the affordability of higher education in the UK, particularly in London.

The new proposed draft London Plan is attempting to facilitate affordable student accommodation and if implemented, 35% of accommodation is to be “affordable for the student body as a whole”.

“The desire for cheaper accommodation is beginning to drive innovation in room types and hybrid operating models,” said Winchester. “In terms of construction, we are seeing creative alternatives to the classic en-suite layout which are both cheaper to rent and cheaper to build, we are also seeing the return of modular construction methods.”

CBRE is optimistic that the student sector is likely to weather the Brexit storm better than other sectors while noting visa restrictions on international students now look less likely to be imposed since they have been found to have a low overstay rate, reducing the risk that overseas student numbers could decline.

“The weak pound continues to attract students and investors from outside the EU, though the impact of potentially reduced research funding from the EU does remain a concern for universities,” added Winchester.

“The potential for rental growth remains good and the general shortage of investors compared to opportunities tends to support values and the market overall is improving, especially in London and prime regional towns.”