Student housing in Scotland
Savills updates its rankings for investors as strong demand for UK student housing sees sharp rise in investment activity
Purpose-built student housing at a number of leading university cities and towns in Scotland has First Class potential for investors, according to in a new report from international real estate adviser Savills.
Glasgow and Aberdeen have joined Edinburgh and St Andrews in the top investor rankings for university towns and cities issued by Savills.
The rankings for 2014 are published in the report ‘Spotlight: UK Student Housing’ , which also reveals that investment in the student housing market totalled £5 billion in the past two years and transactions are forecast to total £2.5 billion this year.
The UK purpose built student housing sector is proving an attractive buy and continues to combine strong yields and rising rental income, although investors will need to bear in mind, however, that the sector is not without risk.
Although it appears that a fall in student numbers last year was a short-term response to the new fee environment, we are seeing a real flight to quality institutions by students increasingly questioning the value they get from their education. We believe that this trend is irreversible and lower ranked institutions will struggle to prove their value for money in the new competitive environment.
There is a lack of certainty over the position of tuition fees in the event of Scotland gaining independence. Under EU law it is possible to discriminate against students from other parts of the member state but not those from other parts of the EU. It appears likely that the government would charge all students the same fee but offer Scottish domiciled students a grant equal in value to the fees.
The Savills rankings are designed as a guide to the investment potential of each location. They are based on a number of factors including current supply and demand, the private rented sector, and future supply and demand, and provide an update of positions first issued in 2013 and designed as a matrix to assess investment opportunity and risk.
However, a lower ranked town may still be attractive if the potential returns are sufficient to account for the extra risk involved.
The report shows that already in the first four months of the year, 17,000 student beds traded at a total value of £950,000 million. This is well above the same period in previous years, with a further £1.4 billion worth of investments on the market.
For 2014, Savills research is forecasting total returns of 13.7 per cent. This is comprised of average blended yields compressing to 6.0% and rental growth of 3.5 per cent.
International students are an incredibly important component of UK universities and investor demand. With a third of international migrants arriving in the UK for formal study, the current Government’s focus on reducing net migration has caused some concern.
However, there is currently no indication of falling international student numbers, which have stabilised at around 300,000 over the past two years - although the nationality mix has changed, with the number of students from China rising by 78 per cent over the past five years.