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The UK property investment market is seeing record levels of money going into the student housing market with over £4.2 billion already in the first five months of 2015. This level of investment in purpose built student accommodation is 70% ahead of last year’s total and 40% above the previous peak in 2012, according to a new report from international real estate adviser Savills. The on-going expansion of the purpose built student accommodation sector has vastly transformed the state of student housing over the last 25 years, the firm’s latest report says. It explains that this investment market has also matured, growing from roots in the Business Expansion Scheme of the late 1980s to the listing of Student REITs on the London Stock Exchange. As the sector has developed, it has seen the bulk of investment activity shift from UK owner-operators to UK based private equity and institutions, and now to global institutional investors. Savills league table of future development potential for purpose built student housing finds 11 leading UK university cities and towns have opportunities for investors. The rankings for 2015, published in the report, are designed as a matrix to assess development potential, based on a number of factors including current and future supply and demand and the private rented sector. Top of the table are Bath, Bournemouth, Brighton, Bristol, Cardiff, Edinburgh, Kingston upon Thames, London, Manchester, Oxford and St Andrews. The next tier includes Aberdeen, Belfast, Birmingham, Cambridge, Canterbury, Chester, Chichester, Coventry, Durham, Exeter, Glasgow, Leeds, Plymouth, Portsmouth, Sheffield, Winchester and York. But those to pass on include Bolton, Bradford, Carlisle, Chislehurst, Cirencester, Coleraine, Cranfield, Hull, Ipswich, Middlesbrough, Newport, Paisley, Preston and Sunderland. ‘Despite a 1.7% fall in overall student numbers over the 2013/2014 academic year, full-time students, the key metric of student accommodation demand, increased, as did the number of students from non-European Union countries,’ said Neal Hudson, Savills research. ‘Following on from our analysis last year, the introduction of higher fees appears to have sustained a flight to quality. Falls in student numbers are typically highest in lower ranking universities, while higher ranking universities have generally seen an increase in domestic and foreign students,’ he added. The report points out that using UCAS data to look ahead, overall university applications and acceptances are up 3.4% and 3.3% respectively for the current academic year, equating to 16,800 more acceptances than the previous year. This brings the total number of students to over half a million for the first time. It also says that increased investment activity in the sector has led to yield compression across all sub-markets. This has particularly been the case for investments in prime London where direct let net initial yields are now below 5% at 4.75%. For 2015, Savills forecasts total returns of 14%. This is comprised of average blended yields compressing by 25 basis points and rental growth of 3.5%. Continue reading →

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