The popularity of student accommodation looks set to continue as the asset class remains attractive during market uncertainty, leading to an increase in overseas investor activity.
- Student accommodation has proven its worth as an asset that can withstand uncertain market conditions
- The sector has grown by 37% since 2014, with student accommodation predicted to hit a total value of £45.8bn before the end of the year
- Cities such as Southampton and Manchester offer investors the most attractive yields as demand continues to outpace supply
The UK’s purpose built student accommodation sector is set to reach a total value of £45.8bn by September 2017, according to Knight Frank.
Some 24,000 beds will be added to the sector next year, the agency predicts, bringing the UK total to around 549,000.
Knight Frank said the sector has grown by 37% since 2014, from £30.9bn to £42.5bn, making student property one of the fastest growing asset classes in the UK property market. Furthermore, the sector is expected to see 2.5% rental growth next year.
Existing investors are likely to build upon newly acquired portfolios, the agency said, as well as overseas investors who have been tracking the market for opportunities.
Rachel Pengilley, Partner in the Knight Frank Student Property Team, said: “2016 has been an exceptional year for UK purpose-built student accommodation.
“As our sector continues to mature, and becomes increasingly recognised for its resilience in uncertain times, we anticipate continued appetite from global capital next year. As we look to 2017, rental growth, strong demand from domestic and international students and a healthy development pipeline are set to be the defining factors in the sector’s success.
“We expect to see capital from all four corners of the globe looking to invest in UK and wider European student accommodation.”
Southampton, Glasgow and Manchester experienced the largest increase in student accommodation rental costs, in 2016 at 8.1%, 7.1% and 4.8% respectively. These locations experience the most significant supply-demand imbalances, with Southampton and Glasgow seeing rental growth outpacing the growth of retail, office and industrial property rental costs.