The UK’s student housing market is on the up, with over £4.2 billion having been invested into developments over the first half of 2015.
The levels of investment into purpose-built student accommodation are a staggering 40% higher than their 2012 peak, and these figures only look set to rise. There are a number of reasons why this particular market is attractive to investors both in the UK and overseas…
It’s a robust market
Throughout the economic recession, the student housing sector consistently provided positive rental growth year-upon-year. Investment even continued in Q1 2015, despite the General Election, a time when other residential markets such as the luxury sector stagnated substantially.
Supply and demand
This has become notoriously strained across the UK in recent years. In core student markets such as Edinburgh, Nottingham, Liverpool, Leeds and London, there is a significant lack of purpose-built student housing, meaning universities in these areas are structurally ill-equipped when it comes to accommodation.
What’s more, the UK’s student population could be set to rise considerably in the coming years, which could place further strain on supply. The number of international students in higher education is projected to rise by 15%-20% in next five years, meaning there is likely to be a sharp uptick in the number of students arriving in the UK to study – and therefore seek accommodation around their chosen universities.
This market has also been the highest performing property asset class since 2011, (Knight Frank reported annual returns of 7.8% in 2013), and is poised to continue on an upward trajectory as investment into developments continues. For savvy investors keen to enjoy strong rental income coupled with high price growth, there is a strong case to be made for examining the student sector.
How to invest in student accommodation
When it comes to making a smart investment, there are some things to consider, such as the fact that the student accommodation market is largely a cash market.
This means skipping the bank altogether, good news considering it’s an increasingly liquid market. To capitalise on this, investors should look for an opportunity that has high resale value and the potential for an easy sale, and the easiest place to start is looking for something with close proximity to campuses and facilities. Property further from the university may be cheaper, but investors can have a harder time filling it and getting their asking rent as a result, not to mention these properties are less appealing to buyers when it comes time to sell.
One strategy involves looking for opportunities in purpose-built developments. There are millions of pounds being invested in building complexes that not only include student housing, but also desirable amenities such as cafes, restaurants, entertainment facilities, bookstores, and grocery shops.
When buying existing student housing, investors often face the headache of inheriting rundown and abused properties, and these require significant time and capital outlay to restore them to state that will fetch a decent rental return. With new developments, none of these issues are encountered, enabling investors to buy a turnkey flat that cash flows straight away. A number of these new buildings are being erected mere yards from universities too, rendering them in high-demand for students, which means higher gains for investors.
Trading and Investment News personally recommends Emerging Property as on of our favourite student property investment companies to invest with.
Some final thoughts:
- Look for properties that have rental guarantees. Be conscious of shorter rental guarantees however, because often the rental income is built into the profit, and once the guarantee period has passed, some developments can simply lie vacant.
- Examine opportunities that enable you to invest directly with the developer. This can mean you get real title in the property, unlike with pier-to-business lending, which can lower your risk significantly.
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