Tough times require more mid-price student homes-DTZ

LONDON (Reuters) - Developers building pricey student homes in London should diversify into more affordable offerings as higher university fees and competitive private residential rents steer students towards cheaper options, DTZ said.

The property consultancy said most private developers were targeting affluent overseas students, with many concentrating on building studio apartments located in central London, leading to a lack of mid-priced options.

While London was an attractive market for developers, "a focus on delivering en-suite accommodation priced within the mid-range of rental levels would be the most sustainable against an unpredictable economic backdrop," DTZ said.

DTZ data showed the average rent offered by private student accommodation developers for 2011-12 in London was 195 pounds a week, against the average rent of 119 pounds a week for university accommodation.

Rents in the private residential sector, which averaged 8,849 pounds a year, or 170 pounds a week, were likely to be favoured by international students with a preference for long-term leases, DTZ said.

"The growing private sector, although very constrained by planning, must compete for student market share and will need to react to demand dynamics," DTZ analyst Sarah Jones said in a statement.

"We believe that developers must acknowledge the changing landscape of higher education, as increased fees are likely to see demand shift towards more affordable accommodation."

The government voted late last year to allow universities in England to charge students fees of up to 9,000 pounds a year -- almost triple the current limit -- as part of sweeping austerity cuts.

Expectations that UK universities may start privatising their accommodation facilities as they look to trim their budgets, as well as rising numbers of overseas students, has served to lure new entrants into the student housing market.

Recent players in the UK market, estimated by DTZ to be about 6.7 billion pounds, include Knightsbridge Student Housing, backed by Oaktree Capital Management, and a joint venture between Carlyle Group CYL.UL and Generation Estates Ltd.

Unite Group (UTG.L) is Britain's largest student landlord.

($1 = 0.619 British Pounds)

(Reporting by Brenda Goh)