Property investors have invested close to £350 million into the UK student accommodation market so far this year, as rental returns in the sector remain attractive, a new CB Richard Ellis (CBRE) report shows.

The student property has served many shred investors well, providing double-digit yields across many parts of the country, and with student applications for university rising year-on-year, demand for student accommodation is expected to grow further, placing added pressure of the supply-demand imbalance.

CBRE report that the student housing market currently generates average rental returns of between 5.25% and 7% depending on location and the leasing agreement, but this figure can prove to be much higher, particularly where there is a shortage of homes available to let.

The report offers the example that there are five full-time students for every bed-space in Brighton and Hove, while in Dundee there are seven and in Glasgow, nine.

CBRE does not expect the impending student fee hike of up to £9,000 per year to dampen demand, which should ensure that there is upward pressure on rents.

Jennet Siebrits, head of residential research, CB Richard Ellis, commented: “The majority of students are likely to react to the impending fee increases by taking out larger living loans or digging deeper into parental pockets. As a result, students will become more discerning and expect higher standards, more choice and a better overall university experience. Students will demand high quality accommodation, a good service-led approach from operators and ideally an all-inclusive rent.

“Private developers will be relied upon to plug this gap, as universities will have very little capital to do so themselves. This means there will be more opportunities for developers to work closely with the institutions going forward, which will also prove helpful in the planning process.

“The historic double-digit rental growth that the sector has enjoyed over the last decade may now be more muted, but we still expect the market to stay strong. Across the country, we expect rental growth in-line with inflation, but this might be higher in some key cities. The student housing sector should still outperform most other property sectors by some margin.”

Ant Lyons (Editor) Your Property Network Magazine