Purpose-Built Student Accommodation As An Investment

purpose built student accommodation

Why Buy Student Accommodation As An Investment?

Student accommodation investments have been amongst the most popular types of property investments in the United Kingdom over the last 5 years. The rise in popularity and profitability of this asset class are indicative of the changes that have taken place in the property investment space over the last few years - HMO’s and traditional buy-to-lets are no longer as profitable as they once were, overtaken by fully-managed, specialist property investments such as Purpose-Built Student Accommodation (PBSA). For the most profitable and sustainable property investment you need to look at adding PBSA to your portfolio.

Over these past few years, PBSA has forged a growing reputation as the UK’s highest yielding property asset. The sector even overtook the US as the biggest student property market in 2015 and is regarded as a World Class Asset (https://www.landlordzone.co.uk/landlordzone-update/nine-reasons-2017-is-the-year-to-invest-in-uk-student-property).

In 2016, £3.1 billion was invested into PBSA, making it the 5th year in a row that the sector received total investment of over £3 billion! Although these PBSA investments are exclusively located in the UK, they are popular with overseas investors, with 64% of all investment activity in 2016 being carried out by non-UK investors.

One reason that these investments are so popular with overseas investors is that they are fully-managed and the investor doesn't need to get involved with any aspect of landlording - management, maintenance and tenanting are all taken care of. Furthermore the yields are NET and so once the purchase price is paid there are no further fees or deductions, leaving the investor to simply collect their regular rental payments and cash in on capital appreciation upon exit.

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Traditional Buy-To-Lets Are Less Attractive Compared to Student Accommodation Investment Opportunities

Traditional buy-to-lets are no longer the most lucrative property investment. In the same way that HMO properties have become long-winded to set up and costly to manage, traditional buy-to-lets for student and working tenants are a lot of hard work for minimal reward.

The average gross yields for traditional buy-to-lets are 4-6% and this is being further diluted by new government regulations. Not only has the 3% stamp duty land tax been levied on buy-to-let landlords, the removal of previous tax incentives and tougher HMO licensing laws have really taken a toll on the attractiveness and profitability of this investment. Apart from the loss of profitability, the management and responsibilities that landlords must face when owning a traditional buy-to-let property has also made many investors reconsider their strategy. The beauty of PBSA investment properties is that as they are fully-managed, owners do not need to respond to late-night call outs for repairs, chasing up rent from all their tenants or any of the other tasks that come with being a hands-on landlord.

For investors who originally became a property landlord of a traditional buy-to-let for the extra income, it has now become more like a full-time job with a lower returns. Because of these worsening returns and increasing complexity, traditional buy-to-lets have become less attractive to property investors.

PBSA eliminates all the extra fluff and hassle of investing, converting and managing a traditional buy-to-let. A PBSA is a property exclusive to students, giving them the facilities they need as well as an ideal location for university life, meaning they no longer need to resort to paying rent for a standard box room. There are luxury student apartments in PBSA developments and these are very popular with overseas students who are prepared to pay higher rental payments in exchange for better quality accommodation.

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Why Pick The UK Student Sector?

The student sector in the UK is booming and it has been the UK’s highest yielding property asset since 2011. There is a growing demand for student accommodation because there are more students being accepted into UK universities. A significant number of these additional students are from outside of the UK . Indeed, there has been an increase in the number of overseas students, both EU and non-EU, despite the uncertainty surrounding Brexit. In terms of international students, the numbers have doubled over the last 10 years and it has even been predicted by property group Knight Frank that the sector will see a further 20% growth in the next 5 years.

On the world stage, the student sector is valued at approximately £117 billion, and there are predictions that it will reach as high as £143 billion within the next 10 years.

The increasingly uncertain returns from buy-to-let investments means that investing in student accommodation is a better option for an assured, stable property investment - one that is not affected by fluctuations in the residential property market.

Reasons why you should choose to invest in the student property sector

Increasing student numbers – In 2016 there were record student numbers of around 550,000, the vast majority of whom will live away from home and therefore require housing. The number of overseas students increased markedly in 2016 and UCAS figures from 2017 tell a similar story - in fact 2016 and 2017 were the years that saw the highest number of applications to UK universities from EU students ever recorded!

There is a high demand – Due to the increased number of students studying in the UK, the demand for student housing has risen and in many areas, especially in the north, it is predicted that the under-supply of student accommodation will not be met for some time. The primary reason for this under-supply is that universities are unable to keep up with demand for housing, which means that most students won’t be looking to pay rent in university dorms. High specification apartments are becoming more popular with students, particular overseas students, who are willing to pay more rent for a luxury PBSA rather than a traditional buy-to-let or HMO room.

Lack of housing – The UK housing market has a tendency to be uncertain and volatile. With high student numbers and the residential housing shortages limiting student access to the private rented sector, PBSA supplies a solution to a potential housing crisis in university cities and a good option for investors seeking to diversify their buy-to-let portfolios and take advantage of the under-supply.

UK’s world-renowned education system – The UK higher education system is known all around the globe. According to Savills, the UK has the world’s second-best university system according to 2016 HESS (Higher Education System Strength) rankings. The UK also has 51 of the top universities in Europe as well as the three top educational institutions on the continent according to Times Higher Education.

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international student numbers uk universities

The Purpose-Built Student Accommodation Figures Say It All

Not only is there a shortage in housing, but it is being exacerbated by students renting a large percentage of residential homes. The fast-growing UK population means that the construction sector just can’t keep up and has RICS forecasted a shortage of 1.8 million residential homes by 2025.

This massive shortage means that the 707,000 students currently occupying housing in the private-rented sector are living in homes that are desperately needed by local families according to the Higher Education Statistics Agency (HESA) This further supports the new development of purpose built accommodation to give students a place to live, whilst not adding to the residential housing shortage.

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Purpose-Built Accommodation - What Students Are Looking For

Well-known UK cities such as London and Manchester are currently over saturated with PBSA. Other cities, such as Liverpool, which has seen a significant amount if PBSA construction, still has only a 49% supply of PBSA, which means that less than half of all students are already living in a purpose-built property, showing how much growth the sector still has to go!

Other areas such as Huddersfield, Preston, Sunderland and Bradford have levels of less than 20% and so these are the locations that are also good to invest in PBSA. It is important to remember that with student property investment that the bigger cities don’t always mean the highest yields. If an area is over-saturated, it means there is more competition and students have more choice, so rents will be lower and they are less likely to choose your property.

Summary

PBSA has been a high-performing investment for the last 5 years and based on the data will continue to grow over the next 10 years. Savvy investors have already invested billions into the sector, but it is not too late to get involved and take advantage of the high-return, high-demand sector with assured returns and no work required on your part!

At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment.

We also work with experienced investors to help them increase the value and profitability of their portfolios.

To book your complimentary property investment consultation with one of our senior portfolio managers simply click the button below and complete the short form and we will call you back at the appropriate time.

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