A fact that has seen some developers and institutions pour millions of pounds into student accommodation and HMOs.
But, is your money safe in this kind of bricks and mortar? How does this compare to ‘normal’ buy-to-let developments?
In this definitive guide, we will discuss the current student accommodation investment market, highlighting key factors to consider when contemplating a development project for this sector.
Where should you develop student housing?
To answer this question, the estate and lettings giant Savills put together a student housing development league table which ranks UK cities’ development potential.
With Bristol, Birmingham, Manchester and Leeds all red brick universities, and Oxford, Edinburgh and St Andrews ancient universities, it is unsurprising to see these university cities dominate Savills’ list for development potential. Since the introduction of higher tuition fees, there has been a trend of students shifting their attention towards leading universities and, therefore, property in those areas have benefited as a result.
JLL reports that London’s full-time student population is expected to rise by 50% over the next decade, which will create a greater demand for any newly developed accommodation.
While other lesser-known university cities appear high up the list, this is most likely due to the opportunity to garner high yields in less-saturated markets. Conversely, some well-known university cities – such as Liverpool – have fallen down the ranks due to demand lessening after heavy investment in student accommodation in recent years.
Student housing vs traditional buy-to-let
Why consider student property development over a traditional buy-to-let?
Well, there are some clear benefits to investors:
• with multiple tenants, student properties typically garner higher rental yields (typically more than 8%) and profit is made sooner than with a traditional buy-to-let
• student properties are generally hands-off and most landlords opt to go down the fully managed investments route
• voids are extremely low compared to buy-to-lets, and contracts are signed months ahead of term times
• student investments offer higher rental growth opportunities.
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Of course, as with everything, there are some drawbacks, too. The primary one being a restricted capital income compared to buy-to-let housing due to the limited number of investors in this part of the market. However, if you buy well, this should not be an issue.
Where are student housing rents highest?
In March 2018, the Office for National Statistics released its latest index of private housing rental prices, which shows monthly rental estimates in Great Britain.
Unsurprisingly, London tops the list with the highest monthly rent as an extremely high-demand area. With the South East and East with the second and third highest.
A complementary study by Accommodation for Students in 2017 found that the average rent for student accommodation in the UK can vary by up to £429 per week, with private halls of residence on average 90% more expensive than shared houses or flats.
A shift away from HMOs towards PBSA developments
Across the Severn Bridge in the Welsh capital, there is an altogether different student accommodation conundrum as the local council has placed planning restrictions on HMO development.
Traditionally, rows of terraced houses in Cardiff areas such as Cathays were snapped up and transformed into HMOs. In fact, apart from university supplied accommodation for first-year students, the student and young professional rental market here was dominated by these older residential properties.
However, years of student influences in these areas has encouraged the council to take action in a bid to address waste, increased noise and anti-social behaviour.
As a result, in recent years there has been a shift towards more modern high-rise buildings with the creation of multiple purpose-built student accommodation developments.
A number of lenders are now seeing student housing as a secure sector due to the high demand in certain cities, therefore, higher loan to value rates are being seen at more affordable finance rates than in the past.
We have seen a steady rise in the number of people in the last 18 months looking to build purpose-built student living, most notably high-density schemes. It would seem that developers and institutions alike have been specifically targeting cities and universities with a known undersupply in the housing to student ratio.
From a funding perspective, we have found the appetite to back these schemes is very strong, especially in core cities with multiple or large universities.
Check out Pure Commercial’s full student housing guide on its website.