Time to get out of student property

By Senior Writer Jody Clarke Jan 22, 2010

Jody Clarke

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With student numbers up 12% last year, demand for accommodation is increasing. And that's translated into positive returns for a batch of student accommodation funds. But investors should be wary of joining a party that may be about to end.

Rising demand for university places, and a shortage of campus accommodation, have been a good mix for investors. For example, the Guernsey-listed Braemar Student Accommodation fund (tel: 0161-929 4969), launched in December 2008, rose 26% last year. It has a £27.5m portfolio comprising four halls of residence in Manchester, Bristol and Newcastle. Meanwhile, the Coral Student Fund (Coralportfolio.com), which targets net returns of 8%-10% per year, is up 6.1% since launching in March 2009.  Student rents have consistently exceeded retail price inflation, according to CB Richard Ellis – they are up by an average of 10% in the 2008-2009 academic year in London, agrees estate agency Knight Frank. That compares well to the mainstream residential market, where they fell by 3%.

But watch out – funds may have done well in the recent past, but that doesn't mean they will continue to, says James Norton of Evolve Financial Planning. "I don't really see that student accommodation is necessarily going to do as well in the next ten years when student numbers come under pressure." The government has already said that the university sector will be one of the first to get hit by spending cuts. And even as Britain creeps out of its worst recession since the 1920s, fewer parents can afford to subsidise children at university. "The flip side is that if people can't get jobs, they might be more inclined to study. But there are a whole host of reasons why (the sector) will come under pressure and people should be aware of that."

Indeed, the recent flurry of activity should have any bubble-wary investor worried. The City is still launching funds to purchase existing blocks from universities or fund the building of new ones. Just this week, Manchester-based firm The Mansion Group (tel: 0161-828 0580) launched the latest fund. Listed on the Channel Islands Stock Exchange, it just completed its first purchase, St Andrews Gardens student hall complex in Liverpool, providing 421 beds in 96 flats. Mark Stubbs, its business development director, points to a Savills report, which noted that the UK market for private student accommodation was worth around £6.6bn in 2007 and was projected to grow to over £20bn by 2015. But with consumers and the government under huge spending pressure, we can't share his enthusiasm.

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Published in Investments | More articles by Jody Clarke

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