Fund managers eye healthy returns from student housing

AFS Team·10 April 2013·3 min read
Fund managers eye healthy returns from student housing
City investors are seeking £50 million in funding for student housing in London.

The capital’s first real estate investment trust (REIT) – a special investment vehicle with tax breaks – will float in May.

Gravis Capital Partners (GCP) Student Living intends to provide beds for foreign students at higher education institutions on London, which has a shortfall of 200,000 beds currently taken up by private landlords.

Tom Ward, a partner at the firm, explained that there is a supply and demand problem in London, as international students from emerging middle classes in China, Asia and former Soviet states are looking for accommodation. This middle market is where GCP Student Living will focus.

GCP will act as investment advisor and Scape Student Living will be the asset manager.

The fund will target an annualised return of 5.5% with a total annual return of 8% to 10% a year. The first project is likely to be a 600-bed student campus in Mile End, East London, with additional properties in the pipeline.

Stable returns and government support pledges are also attracting investment into the UK residential rental property market, it has been reported.

Pension funds and insurers are starting to enter the private letting market as well, and are expected to invest around £7 billion in buy to let and student housing.

Prudential’s property investment arm has revealed plans to invest £105 million in more than 500 rental properties in London and the south.

Reports also suggest 30 other institutional investors are looking at projects, including US-based Oaktree Capital and insurers Aviva and Legal & General.

Property consultants CBRE suggest that these investors are attracted to the market by expected 4% returns, double those expected on the safest European government bonds.