The merging of the seasons brings with it many changes. The days become shorter, the nights become colder, and the green of the leaves fades into a pallet of yellows, browns, and oranges. These changes mean summer has come to an end, and with that, a new generation of young, eighteen-year-old students make their way to universities. This migration brings with it opportunities for property investors.
The number of students taking on higher education within the UK has been steadily increasing. From 2020 to 2030 the student population is expected to increase by 27%. This surge in popularity will result in a higher demand for housing and accommodation.
There have been many events in recent years that could have affected universities. From Brexit to COVID alone, these events questioned the integrity and strength of the UK student market. When it was announced that the UK would be leaving European Union, a high level of doubt was cast over whether the UK’s universities would be an attractive option. Concerns of EU students having to pay higher fees, as well as their worries of their legal status after the completion of their studies have arguably put some students off from attend university in the UK. However, the United Kingdom is renowned for having the best universities in the world, and the student accommodation market is stronger than ever.
Student property investment has seen a huge growth in the last decade, with global investors looking to capitalise on the high demand for universities within the UK. But, is investing in student accommodation a safe bet?
What is student accommodation?
Student accommodations are properties bought and let out exclusively to students. The rise of purpose-built student accommodation (PBSA) has seen an explosion in recent years and has become the largest growing sector in the country.
This is because the student housing market has changed dramatically over the years. The stereotypical idea of a worn down, stripped and cold student house is no longer a reality for most students. Nowadays they desire high-quality living experiences with luxury amenities at a premium. After the prices of university courses increased, universities had a lot more money to play with, and to attract more students, they greatly increased the quality of their student halls and accommodation. This increase in the quality of housing is an attempt to attract more students.
If you are considering investing in student accommodation, if that be a flat, house, or a unit within a PBSA development, then you will consider a number of factors before going ahead with your investments.
Firstly, analyse and scope out the town or city you are considering investing within. Is there a large population of students? Who makes up the bulk of the student population? Domestic or foreign? Are there already existing student developments in the area? What are the costs? Decide on how much time you are willing to invest within your investment. Buying a HMO will mean you will be responsible for all the day-today management of the property. This can be very time consuming however you will not have management fees. Contrarily, investing in PBSAs are ideal for those who don’t have spare time to manage the property. A management company is already put in place to oversee the properties daily. This service comes with a fee that will affect you profits.
What are the advantages of investing student accommodation?
There are several distinct advantages that make student housing so appealing.
No Stamp Duty.
With the majority of student accommodation being under the £125k mark, investors will benefit from not paying stamp duty tax.
Multistorey PBSA generally requires less ground space, student developments can benefit from being within close proximity to the city centre, increasing the potential yields and annual income. Some student properties on the outskirts of cities and campuses are usually cheaper.
Students typically pay higher rent than other tenants due to such high demand. The right property in the right area can expect 20% higher yields.
In most student cities there is a strong and steady supply of students, offering landlords a constant churn of new tenants giving investors a steady income.
Student developers will hire dedicated student management companies to run the entire site. Including the entire sale process of the property, managing tenants, and
What are Some of the Disadvantages?
While there are many advantages that accompany student accommodation, investors should be aware of the disadvantages too.
Upkeep and Repair Costs.
With renting out to students comes the expectation, and reality, of higher levels of wear and tear. Be expected to have potential higher annual upkeep costs.
Additional setup costs may apply, such as licencing, regulations, and renovations.
Periods of No Income.
Student properties are likely to be vacant during the summer holidays, meaning no revenue.
Restrictive Capital Growth.
You will not see the same increase in value with your student let than compared to a traditional buy-to-let. This is dependent on location and subject to market forces.
Investing In The Right Type of Student Housing.
Investors have two choices, Houses of Multiple Occupancy (HMO) and Purpose-Built University Student Accommodation (PBSA).
Second and Third year students tend to move away from halls of residence and into private rented accommodation. They usually want to share their living with friends, and properties with 3-6 bedrooms are most popular.
In certain areas, landlords will be required to obtain a HMO licence. These generally last around 5 years. Susceptible to other legal regulations such as fire safety measures, gas safety checks, and electric checks.
Student demand for accommodation has increased over the last decade, and so has their standards. HMOs are considered outdated as students are now searching for private rental accommodation and halls of residence, located within the centre of cities and university campuses that offer the luxurious lifestyle. These students are willing to pay for a premium for these types of accommodations so having the investor tailor his properties to attract these students will yield higher profits.
With increasing demand and competition from other local investors, it is becoming more and more vital that investors invest within their properties and offer the most within their budget.
Right time, Right Place.
Investors should target high net student demographics to increase profits. International students, on average, pay more for accommodation than domestic students. Investors would find success with properties around universities that attract higher foreign students.
Purchasing and letting your property at the right time is vital. Students tend to look for their property as much as a year in advance. Investors should make the necessary adjustments and plan ahead to make sure that their property is ready for students at the beginning of the academic year.
Which universities and cities should I aim to invest in?
Bristol: With the cities main unis, the University of Bristol and University of West England Bristol having a combined 54,000 students, there are plenty of students competing for accommodation. The surrounding city, Bath has its own university too, offering even more opportunities for investors.
The good news for investors is these universities are currently experiencing a shortage of student accommodation. Projected estimates will require another 6,500 new beds by 2028. Now is certainly the time for investors to consider a student accommodation investment in Bristol.
Manchester: This northern city is home to five universities and has over 100,000 students from all over the globe. With current demand exceeding supply, there are plenty of opportunities for high yields with luxury student accommodation.
Leeds: This northern city has 6 universities and is home to nearly 40,000 students each year, 9000 of them are international. Leeds has one of the most diverse economies within the UK. The city has the perfect environment for student investment. Historically, development levels have been low, meaning low competition with high demand. With the city’s development and popularity, rents for student accommodation is only going up, so investors can gain higher potential yields.
Birmingham: With a student population of around 80,000, Birmingham is the second largest student city within the UK. It offers 5 different universities with a high number of international students, making it a great investment spot for investors. Property itself is cheaper compared to other cities, even purpose built student accommodation.
Nottingham: Home to nearly 60,000 students within the 2 universities this city has to offer. Nottingham is also popular among international students with nearly a quarter of its student population being from overseas. The city is conveniently located in the middle of the country and has strong transport links that make it easily accessible from most of the UK. Nottingham currently adopts Article 4 Direction which prevents family homes from being converted into HMOs. Although the only way to accommodate more students is through the development of PBSAs, student rental property is in high demand, making this is a popular and lucrative option for property investors.
Liverpool: With 5 universities and home to 50,000 students, Liverpool offers a competitive student accommodation market within one of the fastest growing property sectors.
To conclude, popularity in student accommodation has sky rocketed within the UK, in turn, increasing demand for tenants and developers. With this increasing number of potential students, and a lack of supply mounting pressure on developers, investors should snag up these student apartments. The new breed of student pods, with their modern features and amenities are here to stay. If you are looking for a fully managed investment that yields high and consistent returns then we can’t recommend student accommodation enough, however the limited growth and maintenance costs may turn some investors off.