Unite Group looks to the regions
Student housing developer Unite Group (UTG) has signalled a move back into northern property markets, purchasing a site in Huddersfield on which it plans to build a 378-bed scheme. Chief executive Mark Allan expects the intense competition for London plots to depress returns in its key post-crisis stomping ground. “Capital is flooding in and the planning environment has got more challenging. More capital chasing fewer sites means higher land and build costs,” he explains.
This marks an abrupt – and somewhat contrarian – reversal of the company’s previous position. As recently as last August Unite cited its “continued focus on London as our core market” and pledged that its exposure to the capital would continue to increase. “We avoided the regions for a while because we wanted to see how universities would respond to changes in tuition fees. We had more confidence in London because of the undersupply of beds,” says Mr Allan.
But the return differential has become hard to ignore. Mr Allan says total development costs in Huddersfield are roughly £37,000 a bed, compared with roughly £110,000 in London’s Zone 2. “We can easily justify the Huddersfield development with rents of £100 a week, which isn’t too optimistic. The yield on cost should be north of 10 per cent,” he says, estimating the comparable figure in London at 8.5-8.75 per cent. On average, residential land in the capital now costs more than at the previous peak in 2007, according to a recent report by Savills …