July 24th, 2015
The news that student properties can offer impressive yields, which are on average 5-6% higher than buy-to-let properties, has caught the attention of investors previously cautious of what’s seen as an ‘alternative’ asset class.
However, student property investment is even shaking off the ‘alternative’ label too, as over the years it has become a popular choice for savvy investors looking for high yields and extremely low void periods. The market is an attractive one now more than ever because there is still a definite lack of bespoke student accommodation across the country.
Ultimately, twenty first century students are no longer willing to live in the cramped, dingy halls of the past. They want sophisticated, boutique, contemporary homes, with data showing that modern students are willing to pay up to 70% more for the perfect PBSA (Purpose Built Student Accommodation). Buying into this shifting market now puts investors ahead of the curve- properties with on-site gyms, cinema rooms, high quality furnishings, and high speed Wi-Fi are a future proof investment.
This is helped by the fact that student accommodation is a growing market. The demand for boutique student properties is intrinsically tied with the amount of students, a figure which has only been increasing for the past few years. For the 2012-13 academic year there were 653,635 university applications, a figure which has leapt to 699,685 for 2014-15.
This rise in applications is also helped by foreign interest in the country. These days the UK attracts more students than any other host country, beating the second place US by 272,835 students to their 270,128. As international students contribute £10 billion to the UK every year, being a proven student destination benefits the whole economy. Plus, there is even better news for investors, as international students often choose PBSA, not only for their high quality accommodation, but also because of the ease it offers: with on-site management there to help.
So where’s the best place to invest? Firstly it’s important to look at where the biggest demand for PBSA is. Every year Savills release their student housing spotlight which looks at supply and demand levels in university towns, and then gives them a university style rating: 1st for the best, then 2:1, 2:2, 3rd and Passes. This year the only city to be promoted to a First rating was Manchester, whilst into the Upper Second category went Chester and Leeds amongst others.
It is also useful to take note of forecasts- where do the experts predict to flourish next? Currently the region set for success is the North West, which is due to see yields rise by a massive 13% over coming years. This may sound like a lot, but given that the region has already seen student rental yields grow by 22% in only the last 5 years, it may even be an underestimation!
The earliest investors into student accommodation have already seen impressive results, proving its reliability as a mainstream asset class. Therefore, these days student properties are increasingly challenging the dominance buy-to-let has on the property investment market. Long gone are the times when a single buy-to-let flat was enough. Nowadays, savvy investors know that having a diversified portfolio of both buy-to-let and student properties promises the highest and most stable returns.