Investors have pumped £800 million in to student housing in the first half of 2012 - a massive 213% increase on the £375 million invested in the same period last year.
Failure for universities to keep pace with the growing number of students and no dent in demand despite rising tuition fees means investors still have plenty of room in the market, claims property consultants CBRE.
Occupancy rates for many student halls run at 99% and with rents increasing at the same rate rate as inflation, is attracting cash from institutional investors, like insurance companies and pension schemes.
Examples include a £266 million loan by M&G Investments for the acquisition of the Nido platform and Legal & General’s £121 million 10-year deal to refinance a portfolio of UNITE Group properties.
More deals based on the ‘income strip’ model, where the university controls the residence and benefits from freehold reversion, while the investor secures long term income, are expected at many leading universities.
Jo Winchester, head of student housing advisory for CBRE, said: “The current lending market is dominated by large-scale loans against well-managed portfolios, but debt remains restricted for new entrants, single property deals and projects outside of London.
“While they tend to prefer large transactions, insurance companies are able to fund direct let properties and still meet low risk criteria as their exposure is only based on a conservative percentage of valuation.
“There is no shortage of investor demand, but the market is hampered by a shortage of new high quality development opportunities. Proposed changes to the real estate investment trust (REIT) regime, together with the significant increase in the number of new operators in the last four years could widen opportunities for indirect investors by creating a greater choice of investment funds, as well as creating an alternative exit position for established operators.”
