Institutional Investment Splits Expanding Student Property Market

Student property is one of the fastest-growing investment sectors with recorded movement last year at its highest volume.

However, the influx of institutional investment has split the sector markedly, with properties which meet institutional standards finding themselves at the forefront of the sector’s rise while those which do not meet these standards are suffering from reduced liquidity.

Despite the impressive growth that the sector has already seen and the introduction of a stamp duty surcharge on investment properties, it seems that student property has still yet to peak. According to a recent survey by the Mistoria Group, which took in the opinions of around 500 landlords in the student sector, more than a third (35%) have already purchased additional properties this year, before the stamp duty rise took effect, and a further 45% plan to purchase 2-3 new student property investments over the next eighteen months.

Whether investing in traditional Houses in Multiple Occupation (HMOs) or purpose-built student accommodation (which is arguably the star of the sector today from an investment viewpoint), investors have found plenty to draw them to the student sector in recent years.

Per the Mistoria survey, 50% of student property investors believe they would not be getting the same level of yields from any other asset class, and around a tenth believed that investing in the student sector enabled them to offset tax changes and keep their investments profitable.

However, these attractions are serving not just to draw in individual landlords but also institutional investors and, according to Knight Frank, the extent of their involvement in student housing is changing the shape of the sector significantly. During the record-breaking year of student property investment that was 2015, £5.1 billion worth of student beds were bought and sold, compared to less than half this value (£2.42 billion) the previous year.

Almost half of all those student beds sold lost year were bought by institutional investors rather than individuals, and this has polarised the market. Properties which appeal to institutions are now in a markedly different position to those which do not. Properties that do measure up to institutional specifications get the full force of the market’s rapid growth and benefit from wide-ranging appeal amongst active investors. On the other hand, those that do not meet such specifications are effectively missing out on a very large and important group of potential buyers, and as a result they are suffering in terms of liquidity.

Knight Frank also predicts a slowdown in the pipeline for new purpose-built student accommodation developments. With demand still high, this could further strengthen the sector and its appeal to investors. In particular, major cities such as London and Manchester have large student strands in their populations, a significant under-supply of beds for this market, yet a comparatively modest pipeline of upcoming developments.

Photo credit: https://upload.wikimedia.org/wikipedia/en/1/13/Pooley_House_-_Queen_Mary,_University_of_London.jpg

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