Student Accommodation Is Still Profitable

Recent report from Savills Research suggests that although investors are still being attracted to the sector of student lettings, the lack of appropriate investment vehicles puts them under the risk of failure. Jacqui Daly, director of Savills Research, claimed that student accommodation is being made very attractive by a combination of factors, which include high demand, low supply, constantly growing interest rates, and high occupancy. Moreover, data shows that capital values in this sector have not fallen as bad as they did in the commercial and residential sectors. According to the latest statistics, average rents for so-called Purpose-Built Student Housing (PBSH) increased nationwide by 5% and by 7% in London in the time period between 2007 and 2009. Of course, residential lettings offer slightly higher yields of 8% nationally and 10% in London, high occupancy rates are not guaranteed in that sector. At the same time, student demand for PBSH has not declined and is set for future growth. The amount of undergraduate student applications increased by 9% for the academic year of 2008/9, which was coupled by a rise in the number of students seeking accommodation by a factor of 10 nationwide and 15 in London. The dark side of the Savills Research suggests that investors will be limited in their ability to grow interests. The latest activity has been mainly focused on buying, selling and refurbishing old stock rather than building new properties. This is expected to cause an increased student supply in some areas, such as London, where planning constraints limit the possible level of new supply. Head of student housing at Savills Research, Marcus Roberts, claims that the scope of investors able to enter the student accommodation market is very limited as credit availability is scarce. He added that lenders have labelled student accommodation investment as risky as buy to let investment and, thus, are reluctant to provide loans for this group of investors. However, they are able to make use of other investment vehicles.

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