The amount of money pumped into building student housing by institutions soared to an all- time-high last year. A new record was set when £5.1bn was spent in the sector, more than doubling the previous year's figure of £2.4bn.
The student housing sector accounted for 7.1% of total UK commercial real estate investment volumes. This momentum is expected to continue across the sector given the strong market demands, according to the latest research from Knight Frank, which predicts that the year-on-year rental growth witnessed in 2015 within student accommodation will continue in 2016, leading to an (average) rental uplift of 3.5% this year, providing a relatively secure income base for investors.
James Pullan, head of student property at Knight Frank, comments: "2015 was a bumper year in terms of transaction volumes, and whilst portfolios dominated activity, we expect to see an increase in single asset opportunities throughout 2016. We predict a rise in institutional and international investors looking to invest in (this) buoyant asset class."
However Knight Frank predicts that the London development pipeline for purpose built student accommodation will fall dramatically in 2016. Pullan adds: "Despite predictions that the London development pipeline will fall, we anticipate that other UK markets will open up and that there will be a consolidation in the sector."
There is one major reason why the institutions continue to pour money into student accommodation and that is because of the better than average returns. When compared to other commercial property investments, like retail, office and industrial, student accommodation offered the highest capital returns (15.3%) and total returns (21.5%) last year.