What does Brexit mean for student property investment?
In June 2016, the UK voted to leave the European Union. With Britain’s negotiations about to begin, what will Brexit mean for student property investment?
Britain’s departure from the EU has seen uncertainty loom on the horizon of the UK property world, but investors continue to bank on the university accommodation sector as a stable asset. According to new research from Savills, investment in PBSA (purpose-built student accommodation) in the UK reached a total of £2.1 billion in the second half of 2016, up from £1.9 billion earlier in the first six months.
Indeed, student housing has long been one of the most popular assets among investors on TheMoveChannel.com, regularly making it into the 10 most sought-after opportunities on the portal each month. That consistency is a sign of how resilient the market has become.
Why has the sector proven so stable? The answer lies in the same fundamental that underpins the residential property market: there is a structural shortfall of supply. Analysis from JLL shows that across 79 university towns and cities, almost half have student accommodation stock levels below 30 per cent. This, in addition with greater restrictions on the alteration of use from single dwellings to HMOs under Article 4, means that the PBSA sector has grown to become a central part of the student rite of passage.
That rite of passage continues regardless of what is happening in the wider world, thanks to the counter-cyclical nature of the market; historically, during times of economic uncertainty, more young people choose to go to university. In 2015, 532,300 people were admitted into UK universities, a record high and an increase of 3 per cent year-on-year.
Demand from international students also remains strong. The total number of non-UK students studying in the country rose to 436,880 in the 2014/2015 academic year, according to the Higher Education Statistics Agency.
One UK university city with a chronic undersupply is Plymouth; according to JLL, the coastal city has only 20 to 30 per cent of PBSA relative to student numbers.
“Now is the time to invest in PBSA,” says investment specialists Aspen Woolf, which is bringing Beaumont Square in Plymouth to the market. “The combination of low levels of PBSA for the city’s population combined with the enforcement of Article 4 has made Plymouth stand out amongst the rest.”
“Having sold PBSA for a number of years now, we are finding that students are looking for more luxurious accommodation and are willing to pay higher costs for it, which in turn is shaping the standard of PBSA units on the market and making those of this high standard even more attractive to investors,” adds Oliver Ramsden, Director at Aspen Woolf.
How, then, will Brexit impact student property investments? So far, it has not. There is the potential for EU students to go from paying subsidised EU fees to full international rates, making the country less appealing, but concerns surrounding immigration and population should prove relatively minimal: non-EU students made up 71 per cent of students in 2014/2015, according to HESA.
In fact, Savills suggests that Brexit may have intensified the appetite of property investors, now that sterling is worth up to 20 per cent less than many other foreign currencies. International investors have almost doubled their market share in the sector over the past two years, up to 64 per cent in 2016 from 35 per cent in 2015. A quarter of that international capital came from just two investors in Singapore, Mapletree and GIC.
Rents in the sector, meanwhile, rose an average of 2.7 per cent in 2016, according to Cushman & Wakefield. With lenders increasingly financing student property at higher loan to value ratios and at cheaper rates than seen before, the lower costs and higher potential yelds are both key factors in the sector’s appeal.
Negotiations for Brexit will continue for many months ahead. The outlook for 2017 in the student housing sector, though, is certainly positive: £5.3 billion is forecast to be invested this year, up 17 per cent from £4.5 billion last year and a record £6 billion in 2015.