The UK’s student housing market has proved to be extremely attractive to investors over the past decade, but this year investment has reached record levels: to date, 2015 has seen $6.5 billion pumped into the market. For the first time, the UK has outstripped the US, which, in comparison, attracted just over $3 billion. Given the disparate size of the two markets, with the US having over 20 million students, compared to the UK’s 2.3 million, the fact the scales have tipped towards the UK is significant.

So what’s caused the shift? Basically, the US student housing market has reached maturity, with some investors believing that many core markets are fully supplied and fully priced. These investors have therefore looked further afield to emerging markets which offer opportunities to develop their platforms in under-supplied markets.

The UK student housing market was the obvious next in line: it has seen huge expansion in the past decade, and has remained resilient despite higher tuition fees and immigration reform, with demand continually exceeding supply. North American investors in particular have led a global charge of mainstream investors, insurance companies, pension funds and investment banks all keen to put their money into the UK’s student housing stock.

All this activity has served to harden yields, particularly in prime London, where net initial yields on direct-let properties are now around 5 per cent, with compression set to continue in the near term as investors vie for assets. With many international students continuing to opt to come to the UK to study, drawn by its world-class institutions and the attraction of being taught in English, top-tier university cities with low accommodation supply but strong demand, such as Bristol and Edinburgh, will continue to offer potential to investors.

Having made significant headway in the UK, some organisations are beginning to turn their gaze to other countries whose student housing markets may proffer greater returns. The Netherlands, Germany, France and Australia in particular are all emerging as highly investible, with purpose-built accommodation supply generally low and demand high in all these jurisdictions.

However, it is the unwise investor who adopts a ‘one size fits all’ strategy when it comes to student housing. Even within the same country, different cities can have very different prospects. With so much at stake, time spent getting under the skin of a specific market to understand its individual dynamics and issues will pay dividends in the long run.

Further information

Savills World Student Housing Report 2015-16.