Product opportunities in the education sector
There are three main forms of student accommodation investments:
n Rented communal establishments, with some rented flats and houses, owned or managed by universities;
n Rented shared houses and flats which frequently take the form of ‘houses in multiple occupation';
n Rented commercially operated communal establishments (COCEs).
Many higher education institutions only provide accommodation for eligible first year students and foreign students. As student numbers rise each year, and with universities lacking the resources to keep pace with new accommodation provision, it is becoming increasingly difficult for students to gain access to university-operated housing. Between 2000/01 and 2003/04 the number of students in the UK living in this type of accommodation fell by almost 3,000.
Private rented houses and apartments, and private rented COCEs, are the
principal investment vehicles for investors wishing to enter the student accommodation market.
Traditionally, of the three accommodation types, private rented houses and apartments have tended to accommodate the largest proportion of students (40.5% of all full-time students in 2003/04). Between 2000/01 and 2003/04 the proportion of full-time students living in such housing increased by 84,500 (15.3%). This figure includes an element of students who are home owners.
Houses and flats rented to students typically have three or more bed spaces. The average weekly rent in Q4 2005 was £56 per room, per student, based on a sample of 21,500 student properties in 60 university locations across the UK. Rents vary considerably across the country, with the highest found in London where the average is £101 a week, and the lowest in Middlesbrough where the weekly average rent is just £37.
Currently, only 6-7% of all full-time higher education students live in COCEs, although this situation is changing. The number of bed spaces provided by COCEs is rising and, as a result, the number of students living in such accommodation is growing.
A relatively new form of investment into the sector is where a developer/operator breaks up a block of student property and sells the individual flats to investors. These schemes are sold with a management company in place and with yields of 5-6.5% being achieved at present they provide an alternative to the residential sector. The management company will undertake the letting, collection of the rent and day-to-day running of the accommodation for the investor at 20-25% of the gross rental income.
Commercially operated communal establishments
Knight Frank defines COCEs as a block of purpose-built accommodation which is designed to house higher education students or similar groups (eg student nurses/key workers).
The COCE is seen as being different from university accommodation in that ownership is in the private sector in the form of a fund, a commercial operator or a group of private investors.
Modern facilities and services are key selling points for COCEs. These include broadband internet access, satellite/cable television, telephone points to all rooms, swipe card entry, CCTV, onsite security personnel and onsite management/reception staff. The provision of these facilities and services helps to attract student occupants and also alternative non-term-time tenants.