1 December 2015
Development of new student accommodation projects in the UK, particularly in London, is being constrained by a sharp rise in tender prices and costly Community Infrastructure Levy (CIL) payments, according to a report by Bilfinger GVA.
The report suggests that tender prices, which have already greatly increased since the end of 2012, will continue to rise by up to 5 per cent in 2017. This rise will affect the viability of many locations for development suggests Roger Lown, senior director and national head of student accommodation at Bilfinger GVA.
"We've seen a big jump in costs over the last year, which will mean in some locations it won't be viable to build new stock, unless there is a significant hike in rents", said Lown.
A "more stringent" planning regime is also cited as blocking development in some areas, with the average cost of a CIL payment for student housing set at £175 per square metre in London and £75 per sq m in other regions. This payment exceeds those for retail or office developments in a third of areas where local authorities have implemented a CIL regime for student housing.
"It appears some local authorities are using CIL as an instrument to limit the supply of student accommodation," said James Kingdom, lead researcher at Bilfinger GVA. "They'd rather accommodate development that addresses the affordable housing situation in those locations", he suggested.
The report further suggests that following the removal of restrictions on how many students each university could accept in 2015, the subsequent rise in applications will see a modest increase in demand for purpose-built student accommodation. A record level of investment activity has been recorded for 2015, with 80 per cent of investment activity this year arising from new investors gaining significant levels of market share through the acquisition of portfolios.
Roger Lown said: "One of the benefits of the high-level churn within the investment market is that existing stock is being bought by new market entrants, who in time will seek to renovate and improve established sites, in order to support rental growth and increase returns."
The full report can be found here (pdf).