One asset class has demonstrated its resilience during this recent economic turbulence. Student accommodation stands alone as an asset against equity markets. It has remained a robust investment and emerged as sector of the property market in its own right. A growing number of investors are attracted to the strong fundamentals which provide a secure income stream.
Student numbers are increasing each year due to record exam results at home and a greater influx of overseas students. Universities need quality accommodation to attract their share and currently there is a gross under supply. The emergence in recent years of private student accommodation initiatives have therefore evolved. Private operators are now working with universities to purchase and develop their existing stock, or build new. As an investment the sector presents a compelling proposition. Increasing demand for beds outstrip supply, bad debts are low, occupancy is high and students pay their rent (which increases each year) in advance.
Only 9% of students are currently housed in private accommodation. Demand is likely to continue growing, fuelled by increasing student numbers and the further decline in suitable university accommodation. The situation in Europe is where the UK was a few years ago. There are some 8 million students in the main EU countries and only 13% in purpose built accommodation. Student accommodation is being seen as the single largest untapped real estate market in Western Europe.
Universities will continue to work in partnership with the private sector to provide suitable modern accommodation. The UK as an education centre for university is second only to the USA as the most popular to destination for foreign students in the world and the demand keeps on growing with the increase in population in countries such as China, India and Russia. The world as we know it has changed and particularly in times of recession people are returning to education and employers seek qualified and well educated candidates.
This creates an attractive investment opportunity which benefits the universities, students and investors. Outsourcing accommodation frees universities to concentrate on their core educational activities. Students benefit from the increased availability of modern rooms with en suite facilities, internet access, security and parking. Investors are able to participate in this opportunity through a number of investment schemes that have emerged in recent years.
If you look back over the past 10 years even with the market crashes of a few years ago the student accommodation market has managed to stand on its own and consistently provided returns of 8-10% p.a. regardless of stock market performance as its not correlated.
There is however no right answer for everyone, what’s right for some, is not for others. We all have different attitudes towards risk, timeframes to invest, amount of capital and so on. Investments are often made with our emotions and we all think differently. There are hundreds if not thousands of financial instruments available so deciding which solution is best for you can be laborious, confusing & time consuming. It’s important to find a qualified financial advisor who is independent and can provide you with unbiased advice.
For advice or more information you can contact me, Daniel McGonigle, on (+351) 912 792 998.