The UK population is projected to rise from 66 million at the end of 2017 to 74 million by 2039. With this increase, housing needs are estimated by the government at 300,000 new units yearly by the mid-2020s, with at least one third in the social segment. The changing demographic structure in the UK will also mean growing demand for all types of elderly housing for decades to come. The proportion of the population aged 65 and over has increased from 16% in 2006 to 18% in 2018 and is expected to reach 24% by 2036. Similarly, student numbers have grown consistently over recent decades. Recent data from the Higher Education Statistics Agency (HESA) suggests that student numbers reached 2.3 million in the academic year 2017/18. This trend is expected to continue as UCAS data shows that acceptances in 2017 were close to the record high reached in 2016.
The growing appetite of investors for residential alternatives including senior and student living has continued to put downward pressure on yields in these sectors. According to Knight Frank, super prime healthcare assets are trading at below 4%, placing yields in this sector below prime City of London offices. Similarly, student accommodation assets continue to command strong prices especially in London and top tier university towns. Yields in 2018 have compressed in many parts of the market. In London where most of investors’ focus is, prime assets let to universities on an RPI review basis are currently trading at 3.75%, which marks a 25 bps yield compression from a year earlier. The relative maturity of residential alternatives in the UK and the strong pricing these assets are now trading at has pushed investors to consider opportunities in these sectors in other continental European countries, where the fundamentals are similarly attractive.
Sources: CBRE Global Investors, CBRE, Knight Frank