Rental growth in the London student market is up by 1.73% from the previous academic year, whilst across the UK, ‘blended’ rental growth is 1.59%, according to the Knight Frank Student Property Index.

Knight Frank has indicated that the student accommodation sector has produced positive rental growth throughout every year of the economic downturn proving it to be a strong performer and a reliable investment.

However although the headline rental growth figure suggests overall positivity in the market, when you examine individual cities you see a more uneven performance. Bristol, Edinburgh, Cardiff, Liverpool and Newcastle have all experienced strong rental growth between 3% and 4% due to high-performing universities and undersupply of accommodation whilst Leeds and Birmingham have seen one-off rental reductions as student accommodation providers have taken a more risk averse approach to ensure they achieve full occupancy.

Keith White, Managing Director of CRM, said in the report: “Increasingly, students are choosing their accommodation for reasons beyond just price. They are demanding clever design that allows social groups to form and bond; such as placing kitchens and lounges at the heart of the design and not despatched to the ends of corridors.

“Intelligent institutional investors and developers who are open to embracing this change will succeed. We are noting significant US equity investment, yet it remains to be seen if the US operating model will transfer across the Atlantic.

“As a result of strong demand and new entrants, we would anticipate that over the coming months the sector continues to perform strongly. The outstanding opportunities await those ready to move away from traditional solutions.’’

Knight Frank forecast that a prime central London demand/supply imbalance will worsen over the next five years and that rental escalation for London student accommodation will be above the UK trend over this period. Currently students in London pay an average of £299 per week for studio accommodation, the availability of which remains very limited relative to the total student population.

Total investor returns in student accommodation for September 2013 were 7.8% although these returns have fallen over the past four years in line with other property asset classes and Knight Frank forecast rental growth in 2014 will move to 2.75% in the regions and 3% in London.