June 8th, 2016
The popular investment index Lendinvest have this week released its latest figures showing which university towns are showing the best yields for property investors. There are a few surprises in the list but some that won’t come as a shock to many.
As investors are looking for increasingly diverse investment portfolio student accommodation has become an ideal area for low initial capital investment with high returns. Further advantages to student ‘pod’ investment are that occupancy rates are regularly high which assists landlords in avoiding occupancy gaps. As the higher education sector moves closer and closer to privatisation with tuition fees rumoured to be rising again it follows logically that students are also seeking more for their money.
It is with this requirement for value that means developers are building increasingly ambitious boutique accommodation structures in cities all over the country to satisfy high demand. As student community numbers soar the institutions often outdated onsite facilities are often found lacking meaning students having to share kitchens, bathrooms or even bedrooms. The government recently lifted caps on the numbers of students that each university can accept and applications for the 2016/2017 academic year are set to hit record numbers.
Different areas of the country have typically allowed their respective universities to provide vastly differing levels of accommodation due to prestige. In one area of the country a largely successful academic institution would have the funding to provide excellent services whilst a deprived university would be expected to provide sub-par facilities. This has all changed with universities now able to set their own fees and also able to invite the private sector to build accommodation for their alumni. Eventually this has led to an extremely competitive market and it is now interesting to see which areas are providing the best return on investors’ money.
The top cities for yields results were Manchester and Liverpool with Manchester returning 6.02%, followed by 5.15% in Liverpool. Returns in London are surprisingly low – just 4.86% in outer London and 4.71% in the centre of the capital. Estate agent Savills reports that the five largest rental markets outside of London are Manchester, Liverpool, Leeds, Bristol and Birmingham – all popular university cities, where an average 23% of the population live in the private rental sector. The research found that the North West has been the most lucrative area for rental yields in the past five years. Between 2010-15, Manchester and Liverpool came out on top for rental yields, while the south dominated for capital growth and return on investment.
This follows trends in the wider property market with areas of the north and North West representing better value and returns as tax increases and regulations begin to stifle profit in the capital. House prices in London are about five times what they are in Manchester, but salaries are only 30% higher. Manchester is a very affordable place to live and demand for property is soaring in the City, thanks to the expansion of the MetroLink tram system, the trendy Northern Quarter and the BBC Media City. It has vibrant restaurants, bars, clubs plus a great music scene, galleries and museums.
In the second half of this year, we may start to see a shift in investment focus away from London and towards the more lucrative and profitable BTL areas in the UK. Many investors will be looking at ways to protect potential new investments in 2016 from the impact of the Chancellor new tax measures. Regardless of its location student accommodation is big business and no more so than in Liverpool and Manchester where property is having an age of prosperity.