Mayfair, Belgravia and Kensington: all London boroughs associated with affluence and grandeur, not student accommodation. But today these areas play host to a burgeoning student population. With the internationalisation of education and the “flight to quality” of overseas students to highly rated institutions, London’s student housing market is apparently changing.
In late July, London Central Portfolio Limited (LCP), which rents 42% of London’s prime rental properties, released figures reflecting a distinct shift in the dynamics of the private rental market in central London. International student rentals have doubled since 2006 and private student tenancies now account for 29% of LCP’s prime residential market in London.
Research from Wetherell in 2014 indicates that in Mayfair, one third of accommodation costing £750 to £999 per week is rented by students, and of their student tenants, 5% pay upwards of £2,000 per week. That’s a far cry from your average student halls. The Curve, branded as “luxurious private student accommodation”, in Aldgate, London charges from £199 to £365 per week for en-suite rooms, significantly less than the West End postcodes.
Attracted to UK
The UK’s higher education sector is continuing to evolve into an increasingly international one, not only significant for our university systems, but for our national economy. Real estate advisors CBRE estimate that education represents the fifth largest service sector export in the UK, with international students contributing over £10bn (through fees and expenses) to the sector in 2011-12. CBRE anticipates that the number of overseas students will continue to grow by 15-20% in the coming years.
Figures from the higher education statistics agency (HESA) indicate that the numbers of international students from both EU and non-EU countries fluctuates year-on-year. But the most influential trend for the English market is the ongoing increase in Asian students. Between 2011-12 and 2012-13 there was a 6% increase in Chinese students, a 15% increase of students from Hong Kong and a 13% increase in Singaporean students.
Students from these three countries accounted for more than 87,000 students at English universities in 2012-13, according to HESA. The significance of this figure is clear, considering the total number of students attending English universities from all of the EU countries is just below 98,000.
Obviously, not all these students will stay in London, but of the tenancies agreed by LCP, one third are to students from South East Asia.
A positive for the housing market?
Landlords will be the ones to reap the benefits of these changing dynamics of the rental market. Students are surprisingly strong tenants. With international students (who are less likely to have a UK-based guarantor), a significant amount of the rent may be paid in advance to complete the rental agreement.
Student housing has become a resilient sector for investment, providing returns which continue to perform well in London. There is no reason why rentals aimed at students in upmarket postcodes cannot provide a similar income.
With more students entering the market, competition for property will increase and could potentially push rents upwards. Currently, the average rental value for a two-bed property in Kensington and Chelsea is approximately £908 per week and £1,043 per week in Westminster. Overseas students want to live in close proximity to their universities, in safe, secure areas where they can experience all the culture that cosmopolitan London has to offer. If their families are in a position to afford luxury, then why not live in Kensington?
Where will the bankers go?
But the other key element to the LCP data is that with the shift towards international students renting in prime residential areas, there has also been an adjustment in these real estate agents' “typical” client base – financial professionals.
The Telegraph suggests that the international students are “outbidding” London’s bankers in prime residential areas. Yes, the financial sector contracted as a result of the recession, but financial professionals still account for the largest proportion of LCP’s tenants – at 38%.
There has been a market correction of sorts, with some bankers moving out and students moving in, but it doesn’t necessarily indicate an “outbidding” of financial professionals.
It is also difficult to ascertain the magnitude of the figures themselves, as they are only presented in percentages. In terms of the whole student housing market in London, it is likely that those living in prime residential areas represent only a small minority of students.
Supply of housing in the capital is limited and if bankers were to relocate elsewhere, it may push up rents in this location, making it more unaffordable for those already living there. This could instigate a ripple effect of residential change in the market.
If rents do increase in central London, it is likely they will increase across the city eventually. This may create problems for students accessing accommodation in non-prime residential areas and create an undesirable two-tier student housing market, with a widening “chasm of affordability” between affluent and less affluent students.
But it is also possible that another reason for the increase in international lettings is that international students (or their families) are moving away from buying property in London. This was suggested in the Financial Times in 2012, in response to changes relating to increasing stamp duty and taxes.
Although it is challenging to assess the implications of this particular research across the London housing market, it is clear that international students will continue to be of significant value to our universities and economy. It is an economic boon that students want to come to London and study. We should be glad to have them.