Students can be money-spinners for investors

Despite the prospect of degree course tuition fees soaring to £9,000 a year in autumn 2012, investors in student property will still make money because the entire sector is likely to be ‘privatised’ within a few years, says a new report.

Universities and colleges will be so hard-up, says Knight Frank in its new report, that they are likely to complete a £500m sell-off of existing halls of residence to private sector investors in the next five years.

The agents also say changes to higher education funding are “unlikely to deter student applications and intake significantly”.

Although there could be a “one-off dip” in demand in 2012, it thinks “young people will continue to see the value of a graduate degree, particularly in a recession, when faced with an increasingly competitive employment market”.

The changes mean students will become consumers with their payments deciding the survival of many universities and colleges, which will therefore have to focus on the provision of teaching and accommodation.

They will tend to leave the provision of student accommodation increasingly to the private sector.

In addition, fewer parents are buying flats for students for their university courses because prospects of capital gain over three or four years are much reduced.

Knight Frank says the biggest shortage in London is good value ‘en-suites’ which earn £150-200 per week. The shortage in this sector at present is around 100,000, says the survey.

In regional centres, strongest demand is for high-end studios, often targeted by postgraduates and mature students.

The postgraduate sector could become much bigger business for colleges and landlords alike. In 2009/10, around 56 per cent of the 298,000 full-time postgraduates studying in the UK were from overseas, and this figure is set to grow.

Knight Frank also says many more undergraduate courses will last for only two years.

It says: “Changing pattern in demand is likely to lead to a growing tendency for year-round tenancy periods, more cluster flats and fewer students sharing accommodation.

“There will also be a drive towards higher specification units which will bear a close resemblance to private apartments rather than institutionalised accommodation as has been evident in the past.”

Much of the supply of student accommodation will come from big institutions and corporate funding – for example, global private equity firm The Carlyle Group entered the UK sector in September 2010, and has similar investments under way in the Netherlands.

But there are opportunities for private investors too.

For example, the property investment agency Property Secrets currently promises gross returns of 6-10 per cent a year on a student accommodation block in Whalley Range, Manchester, where student ‘pods’ from £24,000 come with a rental guarantee for year one.

Assetz, another specialist investment firm, lists apartments in Birmingham, Leeds, Manchester and Sheffield from £60,000. A luxury mill conversion in Bradford, West Yorkshire, has units from £64,800.