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UK clearers back demand for UK student housing with £214.6m loan

NatWest, HSBC UK and Barclays commit to Downing Group’s development of three schemes in Coventry, Manchester and London.

The UK’s purpose-built student accommodation market has received further backing with a £214.6 million (€249.6 million) loan by three of the country’s major lenders to back a portfolio of properties.

In a club deal, NatWest, HSBC UK and Barclays split funding equally at around £71.5 million each to back Liverpool-based Downing Group’s development of three student housing schemes in Coventry, Manchester and London. The student accommodation investor has a portfolio of more than £1.1 billion and has developed more than 12,000 student bedrooms across the UK.

The financing, which represents 65 percent of the total development costs, will be used to fund Downing Group’s construction of 2,201 beds across the three cities. The developments, which will be at Belgrade Plaza in Coventry, River Street in Manchester and Miles Street in London, are all under construction with proposed completion dates of August 2019, July 2020 and July 2021, respectively.

“Student accommodation remains a hugely attractive sector,” said Hugh MacDonald, director of real estate finance at NatWest, part of Royal Bank of Scotland group. “The UK continues to house some of the best universities in the world, consistently attracting both domestic and international students.”

Demand for “high-quality” accommodation in the country remains “a constant”, MacDonald added.

Take-up in the UK’s private PBSA sector has surged in the past five years, according to a study from higher education admissions service UCAS and consultancy Knight Frank. The report, which surveyed 70,000 students for the 2018-19 academic year, found that around 30 percent of full-time first year students live in private PBSA, up from 22 percent five years ago.

As demand grows, rents for PBSA in the UK increased by 2.26 percent for the 2018-19 academic year, according to Knight Frank. Cities with large, growing student populations and modest delivery pipelines, such as Manchester, are outperforming the wider market, while cities with high levels of existing stock and stronger development pipelines, such as Plymouth, are reporting a more modest growth, Knight Frank said.

Location and supply and demand dynamics may be the primary drivers of performance, but an operator’s brand is also key, Knight Frank said. Schemes owned by occupiers with operational stock of over 10,000 beds in multiple markets reported rental growth in excess of 3 percent on average for the 2018-19 academic year, it added.

The consultancy firm also noted stronger rental growth for en-suite and rooms with shared kitchen facilities, compared with self-contained studios, which reflects higher demand for more affordable bed spaces. The top 10 percent of en-suite bed spaces by price, excluding London, saw less than 1 percent rental growth, while bed spaces within the lowest 10 percent of rent costs have increased at an average of 3.7 percent.