Continued rental growth forecast in student accommodation

Demand for university places continues to rise. Preliminary figures suggest a further increase in demand for places in the 2010/11 academic year, with UCAS reporting a 12% rise in applications at its October deadline.

As an asset class, the student accommodation sector is maturing and becoming recognised as an important element of the wider property investment market. Since mid 2009, there been increased demand for secure income producing assets and demonstrable yield compression.

According to Knight Frank, early indicators for 2010-11 show that student rents will continue to rise by 5%, in the ensuite market, while high-end studios, particularly those in London, will remain static without any falls.

This compares favourably to other commercial rents, highlighting the student accommodation sectors resilience to the downturn.

Tim Goddard, head of student property, Knight Frank said: "The underlying market fundamentals for the student property sector are positive, with supply restricted and strong demand underpinning rental growth.

"Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future. There is strong demand for high quality, income producing assets and it is anticipated this will continue with increased appetite from investors for direct let stock."

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