Student digs graduate to new level

Students outside a gated development at Crabtree Place, London, where two-bedroom apartments have sold for £895,000 and three-bedroom townhouses are priced at £2.995m

As anxious parents watch their children face the challenge of university, many may be quietly looking at ways to invest in property and help out their offspring at the same time. The cost of renting a room always comes as a shock, prompting many to wonder if it would be cheaper in the long run to buy a property, set it up as a student let and watch the capital value grow.

Student digs have traditionally summoned up images reminiscent of artist Tracey Emin’s unmade bed. Bicycles crowd the hallway, there are dirty coffee cups everywhere, sagging posters on the walls, tights drying on radiators. Now, however, student accommodation is becoming one of the most interesting new sectors of the property market.

You could say the time to buy has never been so good, with student numbers at an all-time high. The UK’s Universities and Colleges Admissions Service said there were about 700,000 university applications in 2010, a rise of 34 per cent over the previous five years, and in February this year they went up by another 2.9 per cent. Some students are clearly rushing to beat the tuition fees increase in September 2012, while others are sheltering from the recession by staying in higher education.

This stark imbalance between supply and demand is motivating investors, to the extent that student housing is now classed by Knight Frank as a “key asset class”. It has also proved resilient during the recession, performing in a counter-cyclical way: when austerity bites, the nation’s house prices may drop but the student population expands and rents go up.

In a comprehensive report titled Student Property 2011, Knight Frank points out that three big names have entered the market. Knightsbridge Student Housing was set up last year with the backing of Oaktree Capital Management, with the aim of buying £1bn of assets in student housing, while the Carlyle Group, a US private equity firm, entered a joint venture with Generation Estates Ltd to provide space for 4,000 beds in London.

However, market wisdom is on the cusp of change. Property experts are re-evaluating all their criteria in the light of sweeping reforms recommended by Lord Browne’s review on higher education funding and student finance, published last October. What will be the impact on student demand, and on universities themselves, of putting higher education into a more market-driven environment? Knight Frank predicts stringent budget cuts will prompt universities to sell halls of residence to augment their funding, increasing the need for new student housing. It also predicts that international student numbers will continue to rise as British degrees become more highly prized around the world.

Savills estate agents also predicts an increase in overseas students. In its report on student housing, Survival of the Fittest for UK Universities, due to be published in September, it sees international students becoming a vital source of funding. At the same time, it warns some universities will have to merge and others may face bankruptcy or closure.

“We are seeing so many parents of foreign students buying across the regional cities, whereas four years ago there were very few,” says Mark Evans of Knight Frank. According to the Organisation for Economic Co-operation and Development, in 2008-2009 Britain had the second highest share of all international students after the US.

London is the main focus, with 40 higher education institutions. International student numbers rose by 9 per cent between 2010 and 2011, and developers such as Urbanest and Mansion Group are providing stylish city studios and flats tailored to student needs. Estate agents such as Chesterton Humberts in London’s Docklands are seeing so many students from Asia-Pacific countries and China that the office has hired a negotiator who speaks Cantonese and Mandarin to handle the influx.

“Students are drawn to UK education by its fine reputation,” says Cory Askew of Chesterton Humberts. “They are often from middle-class families, raised in a culture where investment in education is paramount. A lot of money will be spent to ensure they take full advantage of their time here. Rental values in Docklands have increased dramatically, with the average one-bedroom apartment rising from £250 to £350 per week in the course of four months at the end of 2010.”

In Bristol, George Cardale of Savills is selling flats at Deanery Square, just opposite the cathedral. Studios start at £150,000 and two-bedrooms with parking at £250,000. “In the old days, enterprising parents would buy a four- or five-bedroom house in a suburb and fill it with their children and their friends but now they like a purpose-built city centre pad,” he says.

Owners can expect yields of around 6 per cent but a rule of thumb is that the lower the capital outlay, the greater the rental yield and vice versa. For instance, in Edinburgh, there is a development of one-, two- and three-bedroom apartments in Dundas Street in the heart of the New Town, with prices at £177,500 for one-bed properties and £465,000 or £595,000 for three bedrooms through Savills. A one-bedroom might let at £650 to £775 per month, a three-bedroom at £1,400 to £1,750 per month.

International buyers are willing to spend large sums on chic executive flats for their young. Crabtree Place in London’s Fitzrovia is a small, gated development of contemporary apartments and townhouses created by Artesian and perfectly placed for London colleges, shops and theatres. Two of the two-bedroom flats were bought for a Russian brother and sister, both students, at £895,000 each; the remaining three-bedroom townhouses are priced at £2.995m.

The star quality of Cambridge meets both parental and lifestyle ambitions. David Bentley at Bidwells has watched many international buyers snap up high-end flats. “We sold a duplex flat in a development called the Belvedere to a family from Qatar for their son,” he says. It was a landmark sale – the first flat in the city to break the £1m barrier – and a measure of just how important the student property market has become.

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Contacts

Savills (Bristol) tel: +44 (0)117 910 0354, www.savills.co.uk

Savills (Edinburgh) tel: +44 (0)131 247 3709

Knight Frank (Bath) tel: +44 (0)1225 325999, www.knightfrank.co.uk

Artesian tel: +44 (0)20 7350 3000, www.artesian.co.uk