With reported occupancy rates of 99% or more and a lack of supply in the private rented sector, rents for purpose built accommodation are expected to grow annually in most university cities at least in line with inflation.
Funds continue to prefer completed student accommodation projects with long leases, but there has been a notable increase in forward funding deals by institutions although they still mostly require long-dated or de-risked income streams.
It is anticipated that the "income stri" model, which creates a win-win structure where the university controls the residence and benefits from freehold reversion, the investor secures long term income streams and the vendor benefits from keen pricing, will be replicated more widely based on university covenants rated at BBB or better.
Jo Winchester, Head of Student Housing Advisory, CBRE, said: "The current lending market is dominated by large-scale loans against well-managed portfolios, but debt remains restricted for new entrants, single property deals and projects outside of London.
"While they tend to prefer large transactions, insurance companies are able to fund direct let properties and still meet low risk criteria as their exposure is only based on a conservative percentage of valuation.
"There is no shortage of investor demand, but the market is hampered by a shortage of new high quality development opportunities. Proposed changes to the REIT regime, together with the significant increase in the number of new operators in the last four years could widen opportunities for indirect investors by creating a greater choice of investment funds, as well as creating an alternative exit position for established operators."
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