LONDON (Jan 20): Strong demand and undersupply will see student accommodation remain one of the UK's best property investments, according to global property consultancy Knight Frank LLP.
Returns on student housing have nearly doubled year-on-year in London jumping to 15.1% in September 2011 from 8.4% in September 2010, according to Knight Frank's annual student accommodation index.
"Limited supply coupled with rising global interest in the UK's educational excellence points towards further strong rental growth in the sector," said Knight Frank head of student property James Pullan in a statement.
"The growth in London has been fuelled by the particularly robust performance of the core market, and more specifically, accommodation with rents of less than £220 (RM1,051) a week. This is also the rent bracket where rooms were filled most quickly, signalling a strong depth of demand," he added.
Returns in the regions moderated to 10.5% in September 2011 from 14.6% in September 2010. Outside London, Pullan said investment in towns which have more than one university with a high density of students can be the most lucrative.
Last year, average rents in London rose in September, climbing to £14,313, up 9% from £13,121 last academic year. This trend, coupled with the increase in capital values, helped push total returns higher.
The average rent paid by students in the region is much lower at £5,989, but that is still up 4% from September last year.
Knight Frank's report indicated that prestigious universities will benefit most from the introduction of tuition fees amid a "flight to quality" from students who will become increasingly discerning due to the capital outlay required to study.
Pullan said: "The UK higher education sector is certainly facing challenges this year. The funding changes in respect of university tuition fees are dramatic. But the impact of the changes will be similar to a graduate tax, as students will not be required to pay back loans for tuition fees until they earn more than £21,000 a year.
"The winners from the new tuition fees regime will be the most prestigious universities amid a "flight to quality" as students search for the very best course available for their fees. We do not anticipate a fall in student numbers in 2012."
The report stated that education is an increasingly global marketplace. The number of students studying outside of their own country increased five-fold between 1975 and 2008 and the figure is forecast to more than double by 2025.
The UK is well placed to take advantage of this trend having five universities which are ranked in the world's top 20 universities according to the QS University rankings. Overseas students have always had to pay fees to study in the UK and the weakness of the pound is cutting costs for them to study in the UK.
"In a globally fluid and competitive higher education market the UK is perceived to be a centre of excellence. That market is expanding rapidly alongside the corresponding demand for student accommodation," said the consultancy.