www.inspiredassets.co.uk

By Tim Watts,

Tim Watts

Rising student numbers, consistent annual rental growth and an ever increasing appetite from institutions all bodes well for strong performance in this sector but is it really that easy?  Past experience has taught me that when someone tells me it’s easy they have either been exceptionally lucky or really don’t know what they are talking about and are completely fee driven. The private development of student accommodation is a relatively new phenomenon and would appear to provide an excellent investment opportunity which is particularly resilient in more challenging economic times.

forecasts look good

However, universities are starting to slash places as the government funding squeeze starts to take effect. You like me probably thought that education and the Health Service were not forming part of future government’s reductions in spending plans. I wonder what part of the Health Service in due course the government feel is not part of the Health Service! It should also be remembered that this is only the beginning of far greater cuts that will be necessary in order to help reduce the UK’s public borrowing deficit.  So perhaps those successful in investing in this sector will need to undertake a stricter due diligence process before proceeding to the acquisition stage.

For me any acquisition has to tick the following four boxes before further consideration would be given to the proposition:

• The quality of the university
• Location of accommodation to the university and social environment
• International student population
• Supply and quality of existing and anticipated accommodation

These four key considerations should not be considered independently of each other and as this investment sector changes and develops so does the weighting that one should attribute to these four considerations. For example the supply and quality of existing accommodation would not have been an issue in almost every University town less than ten years ago. Now, however, in certain areas not all student accommodation will let, and the requirements of what the student is expecting continue to evolve.

overseas student

In my view the trend in overseas students for a particular university town should now be the key driver. If one takes the view that there is likely to be a continued squeeze on places it is important to remember that there are no restrictions on the number of international students. Whilst there is a cap on British undergraduate fees of £3,225 there is no cap on fees for those outside the European Union. Quite why the British tax payer is subsidising members of the European Union when British applicants are being turned away is not a topic for discussion here but I am sure one for the Daily Mail.

By focusing on this trend and being alert to the requirements of accommodation for the international student there is every reason to remain optimistic that the student investment sector should continue to perform well. For example, with Government forecasts indicating a further 125,000 international students over the next decade it is easy to see why London continues to offer investment opportunities. However one final word of caution. Just as the bubble burst in the commercial market partly due to the weight of money, there is a point, as with all investment decisions, where the answer should be “no” rather than the ridiculous get out clause of acquisition due to the need to balance a portfolio.