The Honest Guide to Student Accommodation Investment in 2021

In this guide, we analyse the advantages and potential pitfalls of student accommodation investment in 2021. 

Looking at rising student numbers, increasing demand from overseas students and the benefits of cheaper off-plan investments, we outline the main benefits to investing in student accommodation. 

We also explain the potential setbacks, including exit strategies, potential risk and how to mitigate against these downsides. 

This guide also covers the top 5 locations to invest in student accommodation in the UK.

Ready to take your portfolio to the next level? Read on to find out about the advantages, potential pitfalls and best locations for student accommodation investment.

Table of Contents

    Is Student Accommodation a Good Investment?

    Investing in student accommodation has been one of the fastest-growing strategies that both new and experienced investors have had success with in recent years. Student accommodation investment in the UK has increased in popularity over the last three years due to 

    As the strongest performing asset class over all other forms of commercial investment in the last three years, student accommodation investment in the UK has seen a sharp increase in popularity and shows no signs of slowing. 

    Below, we explain the main advantages of investing in student accommodation and the top 5 places to invest.

    Advantages of Student Accommodation Investment

    Rising Student Numbers

    In the past 20 years, the UK has seen a huge increase in the number of students going to university and other higher education institutions. Higher education is now seen as commonplace for most young people. Unlike before the millennium where going to university was a privilege that only the elite or incredibly intelligent could enjoy.

    There is always going to be a demand for student accommodation. Despite rising university tuition fees, higher education and the experience of moving away is important to many young people. The ever-present issue with lack of housing and availability of suitable accommodation in the UK is going to remain an issue as university admissions and course lengths increase. Therefore, investing in student accommodation is an asset that can be valuable and useful for both the student tenant and the investor.

    Demand from Overseas Students 

    The UK is a popular location for overseas students to attend university. Its rising popularity amongst overseas students and the lack of purpose-built accommodation to meet the rising demand has made investing in student accommodation a worthwhile and profitable investment for experienced and new property investors.

    In 2020 and beyond, students from all corners of the world much prefer private halls of residence over traditional houses of multiple occupation due to:

    • Increased social life and opportunities to socialise with other students
    • Included amenities such as common and study rooms, gyms, washing facilities that they do not have to maintain
    • Luxury, high-quality interiors that surpass outdated university-owned facilities
    • Receptionist and concierge facilities to take their online shopping deliveries

    Rent for the new privately managed halls is up to 75% higher than traditional HMOs in some of the more popular student destinations. Even in the less popular destinations, student rents are likely to be about 20% higher in private halls than traditional HMOs.

    Research conducted by Knight Frankshows that more than a fifth of students are more likely to be prepared to pay upwards of £160 a week if the student accommodation facilities impress them. This offers opportunities for a good rental yield, especially if you have a good property and location.

    Off-Plan Student Accommodation Is Often Cheaper

    Most student accommodation investment opportunities are off-plan investments. Off-plan student accommodation are those that are still under construction. This means that the developer can offer you the unit at a much lower cost than the real value of the property when the construction is completed.

    At the point of completion, you can either sell the property on to another investor for a quick profit or you can keep the property to get benefits from the ongoing rental income.

    It’s important to discuss your intended exit strategy with a property investment specialist who can advise you on the best plan of action to suit your needs and financial opportunity. 

    The Best Locations to Invest in Student Accommodation

    What About London?

    London property investment has always been popular with foreign and property investors. However, when investing in student accommodation, we recommend looking outside of the capital. The most attractive return yields are available in the North of the country, such as Liverpool, Newcastle, Manchester and Sheffield.

    Liverpool

    With a student population of over 60,000 and a recent £600 million investment in the University of Liverpool, it has never been a better time to invest in student accommodation in Liverpool.

    Student accommodation investment opportunities in Liverpool offer Minimum Assured Net Yields of 9-10% for three years. Areas such as The Ropewalks and Liverpool 1 are great, untapped opportunities for investors looking to take advantage of Liverpool’s growing economy.

    Newcastle

    Newcastle has a thriving student population. Over the last 10 years, it has seen a 30% increase in international students and has over 10,000 purpose built units for students. This makes the city the 2nd highest for the number of purpose-built accommodation (PBSA).

    With a total student population at over 53,000, it is close to Liverpool and Manchester in its student capacity. The current demand ratio is 5:1 students chasing every purpose-built bed, allowing PBSA  in Newcastle to carry 70% rental premiums.

    Manchester

    Manchester has the highest student population in Europe, with two major universities and two more specialised centres for higher education.

    The Salford Quays area alone contains around 20,000 students with 36% more postgraduates than the UK average. The demand for higher living standards for International students is growing, whilst the university-owned accommodation is just not able to deliver such standards.

    This huge student population and increasing demand for luxury living standards means that university-owned accommodation is not able to meet expectations. This is where property investors come in.

    Sheffield

    The University of Sheffield and Sheffield Hallam bring in over 60,000 students to the city every year, making student accommodation investment in Sheffield an incredibly lucrative opportunity. Demand for rental accommodation is extremely high and the city has a higher population than purpose-built accommodation available.

    Should I Invest in Student Accommodation?

    Investing in student accommodation is particularly attractive for new or less experienced property investors. Its dynamics does provide you with a higher assurance of income from rent. As mentioned in the above top locations for investing, there is a large and vastly growing student population in the UK that universities cannot keep up with. Both in terms of numbers of beds and quality of living standards that students in 2021 expect.

    Student accommodation does have a higher return on yield than many other property investment strategies. Student accommodation units are only ever unoccupied during the transition period when one academic term ends and a new one starts, where one student leaves in the summer and a new student moves into the same unit in September. This means there is a greater chance of rental incomes due to fewer void periods.

    Potential Pitfalls in Student Accommodation Investment

    What about Exit Strategies?

    What about the exit strategy for a student accommodation investment? What happens when the rent assurance for your student accommodation investment is over and you are no longer seeing the benefits of keeping a student property in your portfolio? Will selling the property be something that is more difficult due to the nature of the property? Will the investment be worth it overall?

    A simple answer is that it is all down to location. If the location of your student accommodation asset is in a prime location with good facilities nearby and a high student population, then there is always going to be a demand for student accommodation and investors will continue to look for available investments in this field.

    Despite concerns about selling student property as an exit strategy. It is not commonplace for student accommodation to go “up for sale” in a traditional market. If they do, they tend to be sold very quickly.

    This indicates that if the right location is chosen then these investments provide an exceptional yield and are good for the long-term as a residual income generator and can also be easily sold if you need to free up cash quickly.

    If the yield is good and the demand for your property is high, then you may not even get to the point where you want to sell your property on. Why would you want to sell when your investment is thriving?

    As previously discussed, there will always be students as the demand for education only increases over time and students will always need somewhere to live so there appears to be no foreseeable shelf-life for these investments.

    Try to look beyond the developer incentives. If you strip away all the incentives and look at the location (the city and the exact area in which it is situated) and the investment still stands up, then you potentially have a very good long-term investment opportunity.

    Are there any risks with Off-Plan Investments?

    In the same way that you need to research for your potential developer’s rent assurances, you also need to research for a good deal on an off-plan property.

    It cannot be stressed enough how important it is to do your research on the developer, the management company, the area and the forecast. Every investment will have possible risks, so carrying out due diligence and getting good advice minimises the risks.

    If you are concerned about a potential student accommodation investment opportunity or experiencing an overload of information, then it is recommended to get advice from a property investment specialist to ensure you are making the right decision for your financial situation.

    Don’t feel discouraged over the few unsuccessful student property investment projects because there are plenty of successfully completed student property projects that investors have done very well out of and are receiving regular incomes from.

    In Conclusion…

    In 2021, it is forecasted that student accommodation properties will remain as lucrative investments that have a long-term future as the number of students studying in the UK increases – despite concerns of the 2020 pandemic.

    You need to take extra care when considering who to go to for a good student accommodation deal. Whilst many salespeople will promise that rental income is assured, you must be clear that it takes a great location, a good deal and the right execution to get the best possible outcome from a student accommodation investment.

    The risks and benefits can be assessed by a property developer or portfolio manager. It is important that you consult a professional regarding a student property investment to ensure that you are on the right track.

    At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market. We want to help you with 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.

    Get in touch today for your complimentary student property investment consultation with one of our senior property investment managers. We cannot wait to help you with your property investment journey.

    Are you ready to take the next step?

    To learn more about the student property opportunities available through Sterling Woodrow, contact us today.