Student Accommodation: Attractive Fundamentals


Whilst UK student accommodation has become a mainstream investment for Islamic investors over the past few years, recent evidence suggests that activity has increased even further.

News reached me this week that Ahli United Bank is close to reaching full investment of its £150,000,000 student fund, with forthcoming acquisitions in Bristol and Glasgow, both cities identified as being attractive locations for further student accommodation investment. Meanwhile, our own 90 North has witnessed increased investor interest, beyond the near 2,000 beds that our own 90 North already advises on.

The fundamentals of the market remain very sound with property adviser Savills summarising it well: “Purpose built student housing produces reliable rental income flows which, although derived from short tenancies, is secured by depth and stability of demand.”

Whilst UK student numbers dipped in 2012 due to tuition fees rising threefold to £9,000 per annum, this turned out to be simply a pause for breath, with UCAS, who co-ordinate all applications, reporting that a record number of students were accepted for the 2013/14 academic year. However, the growth appears to be largely domestic, as international student numbers are starting to stabilise due to tougher visa restrictions.

On the supply side, student accommodation developers are competing with residential house builders for sites and with the well reported rapid growth in UK house prices, those with sites secured at a competitive price are a privileged position. Recent evidence of this includes Unite, the largest student accommodation operator in the UK, announcing that it was reversing a focus on London due to the high cost of securing sites.

So, if this leads us to conclude that regional cities and affordable rents for domestic students may provide the best opportunities, how best to make money from it? Regrettably for Islamic investors we are not alone in spotting the opportunity, with significant international investment, particularly from the United States of America. Whilst low but stable yields may suit some investors, those looking for higher returns need to focus on assets where the rents and management can be materially improved or development scenarios. Local knowledge remains key.

Author Philip Churchill