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Student Accommodation: Performance versus changes in university application numbers

by | Nov 27, 2018

Demand for student accommodation is obviously a function of how many students attend university. But does the number of university applications tell us anything about the performance of student accommodation investments? Using UCAS university application data combined with our new CBRE UK Student Accommodation Index we can find out.

At the All UK level, Student Accommodation total returns in the year to September 2018 reached 12.3%, thanks to capital value growth of 6.5% and an income return of 5.8%. Over the same period, gross rental income increased 3.0% and net rental income rose 3.4%.

But how did performance vary by popularity of town? It is possible to understand this by comparing our asset performance data with UCAS data for student applications by town. University applications from UCAS for the year of the index results (i.e. applications made in 2017 for the 2017/18 academic year starting in September 2017) are compared to performance of Student Accommodation properties over the year to September 2018. [Note: Our analysis of university applications excludes London as it tends to dominate results].

The results are clear. In 2018, Purpose-Built Student Accommodation (PBSA) assets in towns where university applications increased from the previous year outperformed those where applications decreased (figure 1).

The annual total return for Student Accommodation properties located in towns where university applications increased was 11.3% compared with a total return of 9.8% where applications decreased. While income returns were broadly similar regardless of change in application numbers, capital growth where university applications increased was 5.2% in 2018. Where university applications fell, Student Accommodation capital values increased only 3.8%.

Perhaps the strongest indication that increased applications leads to greater occupier demand for Student Accommodation is the difference in rental growth. In towns where applications increased for the 2017/18 academic year, gross rents rose 3.6% in the year to September 2018. Student Accommodation properties in towns where university applications declined reported gross rents rise 2.2% over the same period.

Investing in Student Accommodation properties located in a town or city where university applications have increased would therefore appear to be rewarding, given the outperformance recorded in 2018. And indeed, analysis of our Index for the year to September 2017 shows a similar story. However, a two year period may not reflect performance over a full cycle, and it will be important to continually refresh this analysis to understand if the trend persists.

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