Rental growth in the UK student accommodation sector has been positive in the 2018/19 academic year, according to Knight Frank’s UK Student Housing: Rental Update 2018/19.
The headline statistic is that rental growth across the UK student accommodation market was 2.26% for 2018/19. This is slightly down on the figure of 2.55% growth recorded for 2017/18, but overall it is only a small decline in the rate of growth. Overall the market is still growing strongly – and that is despite significant and increasing development activity bringing new product to market.
Of course, this is the average figure and it is always worth delving a little deeper in order to find where the best growth is happening.
Predictably it is cities with large, growing student populations and a current shortage of accommodation are where to find the best returns. Manchester is a perfect example of this, with other cities like Liverpool, Leeds, Nottingham, Newcastle and Sunderland also providing investors with great rental yields.
In contrast, the Knight Frank report cites Plymouth as a city with a high level of existing stock and a stronger development pipeline. For understandable reasons, this is reducing returns for some student accommodation in the city – but all that means is that you need to pick and choose your investment more carefully than normal. If you can find a premium investment opportunity in a unique setting which is close to the city centre and the university, then you do not have much to worry about.
So – you have decided where to buy; what type of student accommodation should you purchase?
The cheapest type of apartment is a student ‘pod’ with no en-suite facilities, but the average rents for those are the lowest, standing at £151 per week in London and £109 per week outside the capital. The most common type of room is the student ‘pod’ with en-suite facilities which rent for an average of £199 per week in London and £126 in the regions. Finally, full student studios tend to be the most expensive to purchase but come with the highest average rents - £294 per week in London and £175 in the rest of the country.
Knight Frank notes that there is a slight move away from the larger studios amongst current development, however the majority of the product being delivered is still towards the premium end of the market.
Whilst this push towards premium units may make it harder to find investment units at the cheaper end of the scale, it may help to increase rental returns in the long run. If the larger studios become the de facto norm, then it is likely that students will continue to compete for the best units and pay a higher rent in order to secure it.
This is a good time to be investing in student accommodation, and it is likely that the gains recorded by Knight Frank will continue. For those looking at their next investment, make sure to follow the market and put your money into a city with a growing student base, and consider a premium unit to maximise rental yields.