Investors seek ‘student mode’ for PRS housing

Investment by Pension Funds is expected to spark a dramatic growth in the number of new homes in the UK’s private rented sector?

… but only if developers follow the lead set by student accommodation.

By Ben Hall, Managing Director, LOFT Interiors.

Today’s Student Accommodation providers are focused on providing the best possible “experience” to their residents. Amazing facilities, incredible on-site catering and boutique hotel-esque interiors are what students expect in 2015. Halls of residence today are incorporating gymnasiums, cinemas and even bowling alleys as competition for attracting the highest possible rental returns hots up.

The service, support and facilities currently on offer to students are now considered an essential tool in convincing “generation rent” that PRS is a viable long-term option. But serious questions remain; What facilities will actually make the difference? Will post-graduate students ever be comfortable with renting long-term? Will PRS deliver over-inflated rents witnessed in the student marketplace?

To date, investors have been seemingly unimpressed by the returns on offer from PRS schemes put forward by developers, councils and housing associations, preferring to invest in student accommodation and hotels. In order to boost investment in PRS schemes, I think investors have to be convinced by developers that PRS projects are a clearly defined ‘asset class’ (like student accommodation). Investors must believe that PRS portfolios are worth more than the sum of their parts, otherwise they may see more value in ‘breaking them up’?

Halls of residence today are incorporating gymnasiums, cinemas and even bowling alleys as competition for attracting the highest possible rental returns hots up

The student accommodation approach has been very encouraging in terms of growth for prospective PRS providers – I have personally seen the student sector grow from three or four providers to 14 or 15 in the space of just 10 years!

One solid example of the operational similarities between Student and PRS can be found with operator Knightsbridge Student Housing, backed by US finance giant Oaktree Capital Management, Knightsbridge are set to launch a new £700m private rented sector (PRS) division.

This move represents Knightsbridge’s first foray outside the student accommodation sector since it was launched with the backing of Oaktree in 2010. Robert Crompton, chief executive of Knightsbridge, was quoted recently; “Look at what we do. We build the units, we run the units and we know how to look after our customers already. We will be successful in PRS because we aready do it in the student accommodation market. It’s a natural next step for us.”

The UK’s private-rented sector (PRS) is clearly becoming increasingly popular with institutional investors, including corporate pension funds, fund managers, landed estates, private equity houses, investment banks and sovereign wealth funds.

PRS, Student Accommodation and Social Housing are worth a combined £840bn, with institutional investors accounting for less than £20bn, the three sectors are still a source of huge untapped potential. It is clear that investors should learn from the “student model” for PRS housing.


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