Why student property is such a thriving asset class for investment?

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High quality, purpose-built student accommodation (PBSA) in the UK faces an ever growing gap in supply and demand. The scale of these needed is simply not keeping up with the increasing demand for new build student lets and the lack of the necessary housing means many investors will have to pay a premium for PBSA’s in years to come.

Many investors as a result are increasingly considering student accommodation as a means to flesh out their existing property portfolios and provide good levels of rental income combined with capital growth in major cities and towns across the UK.

Here we will detail some of the reasons why to invest in student property.

Increasing number of students

More young people than ever are attending university and it’s no longer considered something for the privileged elite. Student numbers have almost doubled in the UK since 1992- figures show that from the period March-May 1992 there was 984,000 people aged 18-24 in full time education. In May-July 2016, there was 1.87 million, approximately 1 in 3 people, aged 18-24 in full time education. Higher education is now commonplace, and this is all despite the rising tuition fees showing this is not considered a major deterrent among many looking to study in the UK.

Universities are unable to build enough properties to house the ever-increasing demand so many are turning to private PBSAs as the solution. International students in particular favour the new build accommodation as the high specification of these apartments and their city centre locations are attractive for many parents looking to house their children who are studying abroad. The rise in both domestic and international students mean now is a perfect time to invest in student property for those looking to capitalise.

Continued growth of privately built student accommodation

Purpose built student accommodation is now established as the frontrunner in the supply of new developments delivering 87% of all new beds so far in 2017/2018. Universities are providing just over half of their accommodation bed spaces at 57% in the same time frame meaning that just under half is now in the private sector. Far removed from the HMO model, the new build private sector accommodation are all complete with high specification finishes and a wide variety of on-site amenities. Gyms, Wi-Fi, games and entertainment rooms and high-speed broadband are all commonplace with many students much preferring this to the HMO model of over populated second hand apartments with low quality infrastructure and more frequent maintenance issues. Investing in new build student lets removes many of these issues making it a great reason why many are choosing to invest in student property.

Rising investor returns on PBSAs

Student accommodation is becoming more widely recognised as a growing asset class delivering excellent rental yields- Savills have forecasted a 17% increase in investment in student accommodation for 2018. Many developers and managing companies in the UK are guaranteeing yields of 7-10% on purpose-built student accommodation and Knight Franks recent average showed that to be 7.8% per annum.

In 2016, the student’s accommodation sector showed another consecutive year of rental growth which demonstrates a strong performance for the sector in general. Rents for student tenants rose to an average of £143 per week by the end of last year when only 5 years ago they were at an average of £120. This is largely attributed to the increase of students in the UK during this time in tandem with supply of PBSA’s not meeting the growing demand which has driven up prices on properties in this sector, marking this as a great reason to invest in student property.

Student’s growing expectation on their accommodation

Over the years, there has been a paradigm change in the lifestyle of UK students. Many are now shunning the previously traditional low rent second hand HMO properties as they see the new build purpose-built accommodation with higher expectations than they had done before. Value for money is increasingly becoming considered in terms of accommodation. Increase in tuition fees has created a new breed of modern students who see the burden of increased financial debt should result in value for money in terms of the accommodation services being offered. Many investors are taking note of this attitude change and this is a major, yet understated, reason why many are choosing to invest in student property.

All of the research from renowned property agents like Knight Frank and JLL have shown that UK purpose-built student accommodation will continue to grow and will provide a strong and long-term income for investors, which is the main reason to invest in student property. This is brought about by structural undersupply and positive rental growth every year throughout the economy.

Student property is evolving and now becoming recognized as an important element in the wider property market. This evolution is as a result of a shift in accommodation requirements and applications to higher education courses increasing every year. Student accommodation has been established as an asset class in its own right thanks to stability and performance together with improvement in a profile of the sector.

For more information on our latest investment opportunities, click on the Investments tab on our homepage. Alternatively, give us a call on 0208 445 6542 or email us at info@tarquinjones.com for more details.

 

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