UK student accommodation poised to deliver strong growth in 2011

LONDON: The student accommodation sector is poised to deliver stable and sustainable returns underpinned by its strong performance in September despite a challenging economic backdrop, said global property consultancy Knight Frank's head of student property James Pullan.

In a statement dated Nov 22, Knight Frank reported that total annual returns from student accommodation in England and Wales reached 13.5% in September.

"Across England and Wales rents have continued to rise into the 2010/11 academic year (by 2.2% on average) reflecting the strong demand for accommodation from a rising student population, but also the ongoing process of improvement and enhancement being undertaken by the student accommodation operators," said Pullan.

"Investors are looking increasingly favourably on the sector as they are attracted by what are perceived to be the contra cyclical properties of investing in education.

"Specifically investors are seeking security of income and the wider investment case offered by student property and this is demonstrated by the sharpening of yields over the past 12 months by over 30 basis points — from 6.56% to 6.25% in the 12 months between September 2009 to September 2010," he added.

He noted that student property has maintained healthy returns for the past five years and had sidestepped the plunge in capital values and rentals that hit the wider commercial and residential sectors in 2008 and early 2009.

"Full occupancy is a characteristic of the sector. In the regions outside London, rents have risen by around 4.1% over the last academic year. In London, we have observed some pressure on the high end stock which has resulted in an overall fall of rents this year," he added.

Pullan said the overall outlook for rents is one of continued pressure for annual growth, and a shortage in student housing supply is still noticeable in most markets.

"In London, we project a stabilisation of rents over the forthcoming year with developers targeting strategically accessible transport hubs to provide high quality accommodation at sustainable rents," he said.