Student lettings led the way in property investment with increases in rents, property values and returns on investment in the past year.
Overall, student landlords enjoyed a remarkable 13.5% return in a financial year characterised by poor economic performance in most other industry sectors.
The latest student property survey for England and Wales by estate agents Knight Frank (September 2010) shows:
• Average student rents rose 2.2%
• Average rents in London by 3.6% while those for other cities rose by 4.1%
• Investment returns fell 6.56% in September 2009 to 6.25% in September 2010
• Total returns (income and capital value growth) stood at 13.5%
James Pullan, Knight Frank's head of student property, said: "Student property has delivered consistent healthy returns over the past five years. The sector avoided the crash in both capital values and rentals seen in the wider commercial and residential sectors in 2008 and early 2009.
"Rents have continued to rise into the 2010/11 academic year, reflecting a strong demand for accommodation from a rising student population, but also the ongoing process of improvement and enhancement being undertaken by the student accommodation operators.“
"Investors are looking increasingly favourably on the sector as they are attracted by what are perceived to be the contra cyclical properties of investing in education.
“Specifically investors are seeking security of income and the wider investment case offered by student property and this is demonstrated by the sharpening of yields.”
"Full occupancy is a characteristic of the sector. In the regions outside London rents have risen by around 4.1% over the last academic year. In London we have observed some pressure on the high-end stock that has resulted in an overall fall of rents this year.
The survey concludes the general outlook for rents is continued growth with an undersupply of student accommodation in most towns and cities.
Student lettings review – Knight Frank September 2010 summary
London Regional England & Wales
Avg studio rent for 2010/11
England & Wales 177.62
Avg en-suite rent for 2010/11
England & Wales 112.18
Avg rental change (yr to Sep 2010)
England & Wales 2.17%
Avg capital value change (yr to Sept 2010)
England & Wales 7.28%
Investment yield (September 2010)
England & Wales 6.25%
Total returns (September 2010)
England & Wales 13.53%
Cities where student lets outstrip other house prices
House price growth in student cities is outstripping increases in other locations by up to 65%, while rental yields can hit as high as 10%
The figures come from separate reports by Lloyds Bank and online property portal Globrix (August 2010)
Both come to the conclusion that while student numbers are growing, accommodation is limited as only one bed space was created for each eight new student places at a university in 2009 – and the student population is still set to grow over the next few years.
Universities in Crewe and Carlisle have put out pleas for private landlords to take in more students as accommodation has run out, while 200 single rooms have been doubled up with bunk beds at Falmouth to accommodate overflowing numbers.
Corporate providers – like Unite – are concentrating on providing student letting in London and the big cities, leaving the market in smaller towns and cities clear for private landlords.
The Lloyds data shows half of the UK’s 72 student towns and cities had average house price increases that outstripped regional growth by up to 65%.
Three student house price hotspots were identified as Aberystwyth, Aberdeen and Winchester.
Aberystwyth has seen the student population grow by 90% in recent years.
Globrix pinpoints Glasgow as a student investment hotspot – and properties there already show a 10% net yield. What’s more, the city has no lack of shortage of students looking for a place to live as the city has a choice of three universities.
Another point to note is Scottish degrees last four years instead of three in England, giving an extra potential year of income.
Other areas showing promise for investors, according to Globrix, are Sheffield, Nottingham, Southampton and Brighton.
Cities where student houses give top returns
Property investors looking for a degree of success as landlords should look at surging above average house prices in smaller university towns and cities.
Six out of 10 of university towns and cities have enjoyed soaring house prices that have out performed those in the surrounding area – while many of the bigger cities have had returns that are more disappointing.
The UK’s top three house price busters are:
*Aberdeen – home to 29,300 students– saw a house price gain of almost 40%; compared to 14% price growth across Scotland. This is coupled with a 54% increase in the student population.
*Coleraine – The University of Ulster campus is responsible for a 30% growth in student population since 2005 and has recorded a price increase of 34%, ahead of the 24% for Northern Ireland.
*Winchester - prices rose by 30% in comparison to 2.5% in the South East – as student numbers in the town were boosted by 78%. The average house price of £385,713 is 114% above the UK average of £180,501.
The house price picture is reversed in some big cities with thriving university populations:
*London and Glasgow recorded price growth of just 5% since 2005, although the student population rose by 76% and 43% respectively.
*Student numbers have risen by 66% in Birmingham, but house prices are 3% lower than five years ago and just over 11% below the West Midlands average.
*Leeds, Manchester, and Nottingham have all seen their student population rise by over a third, but only Leeds has an average house price above that of the region.
"Growing student numbers have had a big impact in boosting house prices in some university towns – where the increase in demand has led to the local market outperforming the rest of the region,” said Nitesh Patel, housing economist at Lloyds TSB (August 2010), who collated the house price data.
“It’s a mixed picture for some of UK's largest university towns that have seen student population increase significantly without impacting on house prices. In the past five years, population across the university towns in UK has increased by nearly a million students. Naturally, this has boosted demand for property and land to provide suitable accommodation for students."
The review tracks house prices in 70 university towns and cities across the UK.