CategoriesStudent Accommodation

The 5 Best Places to Invest in Student Accommodation

Over the past decade, the number of young adults embarking on higher education journeys has steadily risen. For the academic year 2019/20, over 1.7 million people began an undergraduate degree in the UK.

As the appetite for higher education grows, so does the need for high-quality, purpose-built accommodation. The student accommodation sector is now worth £60 billion and is predicted to continue to grow throughout the next decade.

What Is Purpose Built Student Accommodation?

As the name suggests, purpose-built student accommodation is housing, built purely for the objective of housing students. This asset style can mould into many forms, but two popular templates are generally used:

  • The first style is where each student will have their private bedroom and en suite bathroom. There will then be a communal living space and kitchen, usually shared between 4-12 bedrooms.
  • The second approach involves creating small studio flats. Each student will have their own bedroom, bathroom and a small kitchen area. They will then have a common living space that affords the social element many crave from student accommodation. This option is popular with both more mature and international students.

Why Invest in Student Accommodation?

Private landlords provide 87% of all new student accommodation beds.

Desires are changing, and substandard shared accommodation is no longer suitable for today’s student. The modern student is willing to pay a premium for functional housing in a great location, which looks amazing.

Alongside affluent groups from the UK, there is a growing trend in overseas families choosing to send their children to the UK to study. In the year 2018/19, nearly half a million international students were studying in the UK.

Student accommodation is an excellent choice for a hands-off investor. Providing the location is carefully considered, the accommodation will deliver a steady income stream year on year. Students generally pay rent upfront for the term and will have a parent acting as a guarantor. Therefore, purpose-built student accommodation is a highly secure investment choice.

Houses in Multiple Occupation v Purpose Built Student Accommodation

University is generally the first taste of freedom that many experience in their adult lives, and therefore choosing the perfect housing is crucial.

In reality, a parents influence is a massive part of the decision-making process, especially as most will be contributing substantially towards the rental cost.

Most parents find safety in their child heading to purpose-built accommodation, often accompanied by a concierge or security system.

Additionally, purpose-built accommodation provides an almost guaranteed community, with the residents often forming a tight-knit group of like-minded students.

For those with minimal experience managing their own money, purpose-built student accommodation can provide the safest option. Many investors offer their properties with utility bills and superfast Wi-Fi included, meaning the rent bill is the only payment the student needs to concern themselves with.

Once you have decided purpose-built student accommodation is the wise choice for you, it’s time to choose where.

The 5 Best Places To Invest In Student Accommodation

1. Manchester

Manchester boasts over 100,000 full-time students, making it one of the most significant student populations across Europe. The average rental yield in the city sits at 5.16%, so offering investors a sizable return.

Over the past two decades, Manchester has solidified its name on a global scale. With a range of attractions, including world-renowned football, drawing visitors from all over the world. So, unsurprisingly, the city attracts the highest number of overseas students outside of London.

Manchester has three huge universities, which span the entire breadth of the city; meaning the investment opportunities are enormous.

Students value the importance of cementing themselves in the northern powerhouse. The universities in the city have strong connections with established businesses. Students appreciate these relationships, and more are choosing to base themselves at a university where they can effortlessly manoeuvre into graduate roles.

60% of graduates who study in the North West stay put when transitioning into full-time work.

2. Leeds

With an average rental yield of 5.12% and a student population of over 60,000, Leeds is a favourite for investors searching for purpose-built student accommodation.

The student population in Leeds has skyrocketed in the past five years, which has caused a considerable gap between the supply and demand of student beds. Private investors are attempting to fill this void by providing accommodation that the local city council cannot.

Property prices in Leeds, and across the whole of Yorkshire, are predicted to rise 28.2% by 2025.

The University of Leeds alone attracts nearly 40,000 students every year, over 9,000 of which are international students. Those new to the area, and even the country, are much more inclined to opt for purpose-built housing, removing the stresses and helping to curate an immediate community.

Leeds has been hailed the ‘digit capital of the north’, with savvy start-up tech firms popping up regularly. Students value the thriving tech market, looking to study in cities that allow them to transition into lucrative workplaces.

Leeds is simply a great place to live. Students want to enjoy a prospering scene for their first taste of freedom, and Leeds provides that exceptionally. Carefully balancing a more hipster, laid back vibe with the popular nightclubs and eateries dotted around the city.

3. Sheffield

With two flourishing universities, the University of Sheffield and Sheffield Hallam University, the city now houses over 60,000 full-time students.

A recent survey ranked Sheffield as one of the top ten most affordable places to live in the country. This factor, combined with the many higher education establishments across the city, means students flock here in their thousands every year.

The central Sheffield postcode of S1 was ranked as the 10th best postcode in the entire UK for buy-to-let properties, with average rental yields sitting at 7.83%.

Additionally, the city is currently undergoing a vast regeneration project. The Moor was given a new lease of life last year, and the rest of the city centre is expected to follow suit shortly.

Like many other areas in the North, Sheffield is attracting international students from around the globe. The local council are working closely with private developers to encourage purpose-built student accommodation across the city. Sheffield is keen to meet the numbers and the quality of property demanded by these modern students.

4. Liverpool

Totally Money ranks the central Liverpool postcode, L1, to be the best place to invest in rental properties in the entire country. With yields of up to 10%, it is no surprise that investors are choosing this northern city for the finest quality purpose-built student accommodation.

With over 70,000 students, the demand for accommodation grows every year. Students are choosing this city for the excellent universities, fantastic lifestyle, and legendary nightlife. Additionally, young adults are aware of the incredible local business opportunities, understanding the value of networking in a city that offers such strong graduate prospects.

Sitting just outside the centre is the Baltic Triangle. This area is a favourite for students, offering a prime location at a slightly more affordable price point. In the last decade, nearly £130 million has been invested in this area, showing the interest from developers and the increased appetite from students.

5. Birmingham

Outside of London, Birmingham is the largest city in England and has a thriving student community.

Between 2015 – 2020, the average house price in Birmingham increased by nearly 40%, sparking the interest of investors from around the world.

Birmingham is home to over 80,000 full-time students, cementing itself every year as one of the most popular places in the country for young adults to enjoy their first taste of freedom.

The city is home to five universities whose student numbers expand exponentially every year. For investors, this city offers a safe choice, with the demand for excellent quality purpose-built accommodation continuing to grow.

The average rental yield in Birmingham sits at 4.52%. Whilst the opportunities are still tremendous, this figure falls just short of its northern neighbours.

However, when narrowing this investigation to student postcodes, the returns can be much more substantial. The postcode B4, for example, is popular with students. The average yield in this area rises to 5.16%, showing the opportunity for those looking for purpose-built student accommodation.

Birmingham offers an excellent opportunity for investors and developers alike, with no sign of the student numbers slowing any time soon.

Continual Growth

The lower cost of housing, combined with the high yields and vast student numbers, is urging more developers north for their purpose-built student accommodation.

The sector is no longer London-centric, and with the number of students predicted to continue rising, these five flourishing cities offer some of the UK’s prime investment opportunities.

Reach out to the team at Track Capital to discuss our student accommodation investments.

Student Accommodation Investment
CategoriesInvestor Advice Student Accommodation

The Advantages & Disadvantages of Investing in Student Accommodation

 

It’s been referred to as the best performing UK asset class in recent years, but is student property investment really a fast route to financial returns or just a fantasy?

There are a few high-profile articles such as this one which warns of the perils of investing in this sector, yet there still appears to be huge demand – institutional investors spent more than £4.3bn buying 51,150 student rooms in the UK last year, as reported by The Guardian. This article sets out what you can expect from your investment both positive and negative, enabling you to consider both sides of the coin and make an informed decision.

And whilst we’ll outline both advantages and disadvantages, please keep in mind that whether Purpose Built Student Accommodation (PBSA) is a good investment, or not, depends entirely on the investor’s personal requirements and objectives, as well as the project specifics including the market in which the scheme is operating.

With that caveat out of the way, let’s look at some of the advantages of investing in student accommodation.

Advantages of investing in student property

No Stamp Duty

With the entry-level of Student Accommodation typically being below £125k, investors will pay no Stamp Duty rates as introduced by The Finance Act 2016, exceptions do apply.

Higher/Longer Assured Returns

New build buy-to-lets tend to come with 0-3 year assured rental returns, both to incentivise investors and to allow large quantities of units to be absorbed into a market without flooding and owners suffering from long voids. With Student Accommodation you will find the yield percentage to be higher and typically for a longer period. It is not uncommon for developers to offer 8-10% NET returns for up to 5 years, this is the headline attraction for many investors. 

Fully Managed

Student developers will normally appoint a dedicated student accommodation management company to effectively run the entire site. This includes the sales process of letting the properties, managing the entire tenant lifecycle and maintaining both the rooms/apartments and communal areas of the building. You will find the rate is a lot higher than high street agents for regular residential properties, but due to the extensive communal facilities and inclusive pricing model, it is normally justified.

Strong Demand

You will still find that in most University cities across the UK there is a critical shortage of student accommodation. Many universities have just a couple of thousand dedicated halls of residence rooms, with the remaining students having to go into the residential market, mostly house-shares. However, this isn’t the case for every city.

Luxurious Facilities

PBSA is more expensive for prospective students than traditional options but the inclusive agreement and onsite facilities are a huge attraction, bills and Wi-Fi are typically included making it a convenient option. Prime locations, social areas, meeting rooms, gyms, cinema rooms, rooftop terraces, cafes, bars, and often a dedicated social program also drive demand. With parents often being a big part of the decision-making process (and paying of course) – onsite 24/7 security, approachable site management teams, secure key card systems, and an efficient maintenance service often mean the parents favour these dedicated student properties. From an investor’s perspective, having a quality product in comparison to market alternatives will bring in the rental income.

Positive Press

There are far more positive articles and statistics to support the investment than negative. Major research-focused organisations such as Savills and Knight Frank often report positive data for the market. The following are some examples from this year alone – Headline rental growth for purpose-built student accommodation increased by 2.55% for the 2017/18 academic year according to Knight Frank here. The market has a £46bn total value as the Guardian reported here and even Brexit may have intensified appetite for UK student housing. The UK saw over £2.1bn transacted after the referendum, compared to £1.9bn earlier in the year – Savills reported.

Disadvantages of investing in student property

If you’re more of the glass half empty type, here are the disadvantages which you need to consider before investing:

No Finance Available

There is no finance available for student accommodation projects, most mainstream lenders will not lend against this asset class.

Capital Growth

This is one of the main disadvantages of student accommodation. Investors need to be aware that you will not see the same increase in property value year on year as you would with a typical buy to let property. Of course, this will vary from market to market and project to project, but the general rule of thumb is that if you are mostly focused on strong capital growth, then perhaps stick to residential property investment.

Resale Market

Another key factor to consider is your resale market. When you come to exit and want to sell on the property, you will only be able to sell to a cash investor, not an end-user. This restricts your options drastically.

Assured Return

‘Assured return’ effectively means contractually guaranteed, which is where the developer will provide a contract stating the agreed return. However, in the rare case the developer goes bust your contract won’t be worth much as ultimately the developer won’t have funds to pay investors. Although problems are rare, you should ensure projected rents are realistic and provide an attractive return after ground rent, service charges, and management fees, this will ensure you’re less reliant on the assurance.

Summary

The popularity has rocketed in the UK in terms of demand from tenants and developers to build student accommodation. In fact, there are 25,000 bedrooms to be built before the 17/18 academic year as mentioned here and £5.3bn is expected to be injected into purpose-built student accommodation in 2017 – see here.

There is certainly no lack of investors ready to snap up the student ‘pods’ or self-contained apartments, which, by the way, are far superior in quality compared to the old-fashioned halls of residence traditionally associated with university accommodation.

The new breed of student halls is here to stay for the long term. If you are looking for a fully managed option, high rental return, happy to buy with cash, and not achieve extensive growth, then a property in this asset class could make a fantastic addition to your portfolio.

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