11
RENTAL COSTS
According to research by NUS and Unipol the price of student accommodation in the UK varies widely from as low as £50 per week to as
high as £349 per week (in once exclusive scheme in Kensington, central London). The average price in London for an en-suite room is £210
per week and the national average is around £104 per week according to Knight Frank.
The average annual student rent in the UK has increased from £3,190 in 2006/07 to £5,224 in 2012/13, an increase of 63%. Over the same 6
year period the basic maintenance loan has only increased by 25% from £4,405 to the current level of £5,500.
The UK Government has just announced that student loans in England will rise by only 1% in 2014/15. This rise is lower than the current
rate of inflation and much lower than recent increases in rental. The basic maintenance loan will rise to £5,555 for students outside London
and £7,751 for students studying and living in London.
If we look at London, the rental increases seen over the last few years mean that the basic maintenance loan in many cases nowhere near
covers the cost of living for the student - at the average London price of £210 a week a student on a 42 week contract would pay £8,820 a
year in rent alone.
INVESTMENT RETURNS
Average yields for student accommodation
are relatively strong and have outperformed
residential buy-to-let and commercial
returns over the last few years. In 2010 the
average net yield across the sector was
between 6.25% and 6.35%. Since the start
of 2012 average net yields have varied from
5.5% to 7.5% across the UK.
Central London has some of the highest
rental prices but net yields are actually
some of the lowest in the UK at around
5.5%, due to high purchase and on-going
property management costs.
The West Midlands has some of the highest
net yields of 6.5% which is helped by strong
demand from a number of large universities
including Warwick and Birmingham. Cities in
Yorkshire also have a high net yield of 6.4%
due to low house prices and strong demand
from 14 universities including Leeds, York
and Sheffield.
2012 was a strong year for student funds, in
particular the Unite Student Accommodation
Fund which achieved a return of 14.2% for
the year (capital of 8.7% and rental income
of 5.5%). The fund has predicted further
growth during 2013.
It is now common to use RPI inflation linked
annual uplifts in most lease agreements,
which helps to drive rental growth and keep
returns strong year on year. Growth of 5%
per annum has been achieved since 2011
and Knight Frank predict this to continue
over the coming year.
An increasing number of the investment
deals in the student accommodation sector
have been underpinned with a long lease
or nomination agreement with a partner
university, which is therefore very attractive
to investors.
Property
Griffon Studios, Battersea
Cambridge Portfolio, Cambridge
Camden Court & Magnet Court,
Newcastle
Investor
Berkeley First, L&G
LaSalle Investment Management
LaSalle Investment Management
LONG LEASE STRUCTURES
Source: GVA Research
Operator
Imperial College London
Anglia Ruskin
Unite
Length
45 Years
25 Years
25 Years
Lease Type
Annual RPI uplifts, reverts to
imperial at end of lease term
Annual RPI – Min 2.75%, max 5%
collar and cap
Agreement with Northumbria
University on annual RPI basis
PROPERTY MANAGEMENT
The main duties of student property
management companies will include the day
to day servicing, letting and maintenance of
private student accommodation. They may
charge a percentage of up to 30% of the
rental income, or have a lease agreement
whereby the management company will pay
a fixed annual amount (possibly with annual
RPI increases) and will then make their profit
on the rental income they receive above this
amount.
The management company is extremely
important as they are ultimately in charge
of securing tenants, maintaining the
accommodation and collecting rents.
There are a number of national student
management companies which have created
an almost “hotel” like brand and reputation
which students recognise. This can put
these companies at a distinct advantage as
they can gain more exposure and demand
is likely to be higher. Ultimately they must
be competitive on price and maintain a
high standard of accommodation to be
successful.
“Knight Frank have predicted the average blended UK investment return to be 9.2% over the next 12
months from April 2013”
CRM Students
)
The Student Housing Company
)
Mansion Student
)
UNITE
)
Liberty Living
OPAL *
)
*In administration
