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Rental growth in any of the property sectors is driven by the relationship between demand and supply of which student accommodation is no exception. The main characteristic of property is that in the short term it is relatively fixed in supply whereas other economic variables such as, in this case, a hike in student fees could result in a sudden drop in demand and in consequence negative rental growth. The classic property example was when offices in the City’s rents dropped like a stone following the 2007/8 banking crisis when thousands of City based employees in the banking sector were laid off resulting an oversupply of office space.
The investor’s white knight may be an increase in the influx of students from overseas particularly for universities that have a strong international reputation. However, education is an increasingly global market place and this demand will not necessarily be infinite, particularly as the standard of education overseas improves.
Students are becoming more willing to travel abroad for the best educational opportunities and whilst currently the UK is well placed to continue to take advantage of this, other international centres of educational excellence will emerge to compete for students including those living in the UK.
A UNESCO survey reported that there was a 12% annual increase in the number of international students globally in 2009 to 3.43 million. The reason for such a large increase of international students in the UK, 75% since the year 2000, can be related to the growing middle class in emerging economies, especially in areas such as China and India. Recent estimates show that the annual revenue from non-UK domiciled students is around £12.5m.
The UK is well placed to continue to take advantage of this increasingly mobile student population and may continue to focus on this with student fees rising. The UK has five of the world’s top 20 universities according to the QS University Rankings whereas France and Germany have none.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.