Unite (UTG) has defied the property downturn to register portfolio growth alongside record levels of reservations for its student accommodation.

A strong performance from the student accommodation developer is a rare piece of good news in the downtrodden property sector which has struggled since the sell-off in the second half of last year and continues to be put under pressure by higher-for-longer interest rates.

The £3.4bn portfolio is made up of two funds; the Unite UK Student Accommodation fund (USAF) and the London Student Accommodation Joint Venture (LSAV), both of which enjoyed valuation growth in the second quarter.

As of 30 June, the USAF portion of the property portfolio – which is made up of nearly 28,000 beds spread across 17 buildings in 19 university locations – was valued at £2.9bn, a 1.2% increase during the quarter, while investors also benefitted from rental growth of 2.2% and a five basis points (bps) increase in property yields.

The LSAV investment portfolio was independently valued at £1.9bn, a 1.1% increase over the quarter. It also saw rents increase by 2% and registered a 4bps increase in the property yields. LSAV is made up of 9,716 beds across 14 properties in London and Aston Student Village in Birmingham.

The USAF portfolio is now valued at a weighted average yield of 5.1%, while LSAV is at 4.3%.

Lettings performance has remained strong over the second quarter with a record 98% of rooms now sold for the 2023/24 academic year, versus 91% in 2022/23. The fund said it had seen strong demand from both university partners and students booking rooms directly to take advantage of the developer’s all-inclusive offers.

The swift take-up of beds supports full occupancy and rental growth of around 7% for the 2023/24 academic year, against 3.5% in 2022/23.

Richard Smith, Unite Students chief executive, said the reservations ‘remain at record levels’ which reflects ‘strong demand from both students and universities, and the attractiveness of our fixed-priced, all-inclusive offer’.

‘Our strong leasing performance will continue to support our property valuations as the market adjusts to the environment of higher interest rates,’ Smith said.

There is also a lack of student accommodation coming to market and the sector ‘cannot keep pace with growth student demand’ at the same time as houses of multiple occupation landlords – who offer students shared accommodation in houses – are ‘leaving the sector’.

‘Unite is uniquely positioned to address this housing need through our best-in-class operating platform, university relationships development and asset management capabilities,’ said Smith.

Unite is aiming to bring more developments to market, developing four sites at a total cost of £339m, with the £179m remaining costs to complete these projects funded through the group’s cash and ‘debt headroom’ of £393m.

Over the quarter, the USAF part of the trust completed a new £400m secured loan, refinancing its £380m bond which matured in June this year. The new seven-year loan has a fixed rate of 5.4% and is ‘consistent with our previous guidance for a 3.6% overall cost of debt in 2023’.

Liberum analyst Shonil Chande said the valuation increases were ‘ahead of our run-rate expectations’.

He said that Unite Group is trading at an 8% discount to his estimate of net tangible assets, which compares to a 26% discount at peer Empiric Student Property (ESP).

‘Unite offers a 4.4% dividend yield compared to 4.3% offered by ESP,’ Chande added.