The increasing popularity of newly built privately managed university halls of residence among the UK’s fast-growing undergraduate population is reviving interest in the student market among property investors.
The student market has changed significantly over the past years as more undergraduates move out of traditional lodgings in large houses of multiple occupation located in the more affordable areas of university towns and cities.
They are now switching their focus towards new-build, privately managed halls of residence that provide secure studio-style accommodation in prime central locations.
These high-spec buildings, which come with high-spec finishes and often provide free Wi-Fi, high-speed broadband, on-site gyms, and secure parking, command premium rents.
In towns and cities with a large student population, these new-style halls typically command up to 75% more rent than traditional student homes. Even in locations with fewer students among their residents, rents for private halls tend to be around 20% higher than those generated by HMOs.
Why invest in student accommodation
Investing in student accommodation is a good idea due to its potential for high and consistent returns. Unlike other property markets, student housing typically experiences steady demand, particularly in cities with well-established universities.
Students often require housing for their studies, leading to reliable, long-term rental income. Furthermore, the rental yields from student accommodation are often higher than those from standard residential properties.
The predictable influx of new students each year also mitigates the risk of prolonged vacancies. Additionally, the sector has shown resilience in economic downturns, as education remains a priority, making student accommodation a relatively stable investment.
Constant and growing demand
A further advantage of investing in the student market is it is almost entirely non-cyclical. Its trends display very little correlation with those in other markets, as was seen when it was one of the very few asset classes to show decent growth during the recession.
In fact, international property group Knight Frank has highlighted student property as the single best-performing asset class in the UK.
In 2023, the UK student accommodation sector attracted significant investment, reflecting its strong appeal to investors. Specifically, the market saw investments reach approximately £1.1 billion during the first half of the year. This surge in investment was driven by the growing demand for purpose-built student accommodation (PBSA), which continues to outpace supply, particularly in key university cities. The trend was bolstered by the resilience of the student housing market, even amidst broader economic uncertainties (source: Property Investor Today and Grand View Research)
And the student market is growing. Over the past 20 years, there have been huge increases in the number of students attending a higher education establishment in the UK.
In 2023, more than 550,000 full-time students started attending a higher education established in the UK. This figure includes both domestic and international students and represents a slight decline compared to the previous year. The overall number of higher education students in the UK remains robust, contributing to the continuing demand for student accommodation across the country.
Overseas students
It is estimated that the number of overseas students studying in the UK will increase over the next five years. Typically, overseas students are more likely to favour the new private halls, with their high-spec finishing and city centre locations, and in some way, they could be said to have initiated this growing demand for high-quality student accommodations.
The UK remains a highly attractive destination for international students due to its world-renowned universities, diverse cultural environment, and relatively favourable post-study work options. Despite challenges like Brexit and visa regulations, the number of non-EU international students, particularly from countries like India and China, has been rising steadily and is projected to continue growing.
New investment sector
It is worth noting that the student accommodation investment sector is still in its infancy and the vast majority of companies operating within it have been doing so for around five years.
If you are considering purchasing a student buy-to-let property, it is advisable to investigate the track record of both the developer and the management company. This is because investors have to rely on them to both deliver the completed project and ensure it is tenanted and well managed.
How to invest in student accommodation
Investing in student accommodation can be a lucrative venture, particularly in university towns and cities with a consistent housing demand.
Thorough research is essential to begin. This includes analysing the local rental market, understanding student preferences, and considering proximity to university campuses. Properties that offer en-suite facilities, high-speed internet, and communal areas tend to be more attractive to students.
It is also advisable to consider the potential for capital appreciation and rental yields. Engaging with a reputable property management company can ease the burden of maintenance and tenant relations. Additionally, staying informed about legal regulations and local planning laws is crucial to ensure compliance and protect your investment.
Check out why invest in social housing.
