Investment in student accommodation vs conventional buy to lets

[Luke Masters]

Afternoon all,

I have seen an increasing number of investors looking to explore the student housing model in the past 12 months, I wonder whether this is an outcome of the increase in international students in the last decade increasing the demand for such property.

Although typically the investment nets you a higher rental return, I would like to open the conversation as to whether it translates to a higher net return or just a visually attractive gross return. This I ask this based upon the increased up keep costs generally associated with student rentals?

With the UK economy continuing to prosper the students of today often have access to better financial support and increased standard of living, this in turn gives them a higher expectation on the standard of property they expect. I envisage that student villages and student flat blocks will in the future offer a very low void rate with a potentially high return, this is of course based upon the costs associated with the upkeep.


I researched the topic and came up with some interesting statistics I have included below:

In the first half of 2015, £3.8 billion was invested in student property in the UK, and it’s predicted that this will rise to £5.7 billion by the end of the year. This amount is equal to the last three years combined.

The figures should come as no surprise as the demand for student accommodation continues to increase. In the last 10 years there has been a 50% increase in the number of international students, with 18% of the growing student population being international, according to the investment firm's findings.

Students are also moving towards preferring to live in purpose-built developments as opposed to Houses in Multiple Occupation (HMO’s).

Source: Property Investor Today


I would love to hear from people with experience or knowledge in the student market on any level and hear their thoughts on the future of this marketplace.

Best Wishes,

Luke Masters

 

[Nicholas Wallwork]

I agree students are moving towards dedicated accommodation away from HMOs. I see this in many major towns and cities and have spoken with a number of student HMO landlords who are turning to the professional market for tenants now as that is also booming with rental demand... Young professions would rather pay for a good quality professional ensuite room in and HMO than spend out for a studio rent and all bills...

I think the student property investment market IS booming and has been for a few good years as developers have struggled to sell homes since the credit crunch until the recent couple of years and turning the stock into student flats was a good secondary market for them... As the tides turn and people can afford to buy again (government help, better finance, higher employment and wages etc) then I think developers will build less student blocks (as that market also gets saturated) and go back to building homes and buy to let apartments as they will get a premium.

 

[Izzie Aslam]

This is a hot topic but I think its an interesting one. Coming from a university background, there is a lack of student accommodation especially where I went to in the last 8 years there has been 6/7 new student developments by major key developers who specialise in student accommodations. The demand has changed along side the normal student norm of living in prison conditions, this new era of contemporary state of the art developments from developers such as Unite Group are exploiting areas of growth and potential i.e Bournemouth, Bristol. (having recently bought 2 sites in Bristol this year alone) "which will provide homes for 900 students, the sites are well located to house students from both the universities in the city and provide Unite with an opportunity to further strengthen its relationship with longterm partners"

Student Accommodation investing will remain strong based on 3 key factors that is as long as the universities maintain there educational performance and star ratings and attract students from wealthy backgrounds and continue to target international student business, I see this trend growing as when it comes to renting out student accommodations most of the rent is covered by student loans (for some international student i.e. Dubai, Jersey on channel island the government fund this) and students will pay a bit more for a more upper class living simply because they can and money is not an issue until they finish and have to pay it back!!

Having done some research here is what I found:

- UK UNIVERSITY ESTATES CONTINUE TO GROW WITH A TOTAL INCOME OF £28 BILLION

- UNIVERSITY SECTOR WORTH MORE THAN ANNUAL GOVERNMENT SPEND IN NORTHERN IRELAND

- CAPITAL EXPENDITURE OVER £2.5BN - HIGHEST ANNUAL SPENDING ON RECORD

- FIRST YEAR UNIVERSITY STUDENTS EQUATE TO BRISTOL POPULATION

- THE SECTOR HAS A TOTAL INCOME OF £28 BILLION ( AN INCREASE OF £1 BILLION FROM LAST YEARS REPORT)

- TOTAL REVENUE EXPENDITURE ON PROPERTY IS ALMOST £2 BN

- CAPITAL EXPENDITURE IS OVER £2.5 BN (THIS INCLUDES THE REFURBISHMENT & UPGRADING OF EXISTING ACCOMMODATION,THIS IS DRIVEN BY THE NEED TO PROVIDE MORE MODERN AND SUITABLE ACCOMMODATION ALONGSIDE MORE PURPOSE BUILT NEW ACCOMMODATION.

so the above financial statistics show a lot of visual direction where the trend is going, the UK continues to retain excellent students across the country, oversees recruitment will play a major part for some institutions as well.