Student Accommodation Investment – Comprehensive Guide

In the last decade, student property investment has seen huge growth, with investors worldwide looking to capitalise on the demand for student accommodation in university cities across the UK.

But, you still might be wondering, “Is student property a good investment?” and we’re here to help answer that question.

More than ever, student property is becoming an integral part of a property investor’s portfolio. While there are many opportunities, investors should pay attention to drawbacks and be sure to seek out properties presenting higher yields and steady occupancy levels to ensure a student property becomes a good investment.

Student property investments can offer investors a number of advantages. But there are also certain downsides that should be kept in mind before embarking on this property investment journey.

Below, we weigh up some of the pros and cons of student property investment, important factors investors should consider, and the best locations in the UK to invest in student accommodation.

Understanding Student Accommodation Investment

Investing in student accommodation has become increasingly popular in the UK, recognized for its potential to offer high yields and robust demand.

This investment avenue caters specifically to the housing needs of university students, encompassing a variety of property types and investment models. Here’s a closer look at what student accommodation investment entails, the market dynamics, and the factors driving its demand.

Definition and Types of Student Accommodation

Student accommodation in the UK is broadly categorized into several types, each with its own set of characteristics and investment considerations:

1. On-Campus Accommodation: These are housing options provided by the universities themselves, typically consisting of halls of residence. While this type offers students a convenient living situation close to their educational institution, investment opportunities for private investors are limited due to ownership and management by the universities.
2.  Off-Campus Private Halls: Similar to on-campus accommodation but owned and managed by private companies or investors. These buildings are often purpose-built student accommodations (PBSAs) that offer a range of amenities and are located close to university campuses.
3.  Shared Houses or HMOs (Houses in Multiple Occupation): These are privately owned houses rented out to groups of students. Investors can purchase residential properties and convert them into HMOs to accommodate student tenants, offering a more home-like environment.
4.  Studio Apartments: Self-contained units catering to students who prefer living alone or require more privacy. These can be part of larger PBSA complexes and include a variety of amenities.

The student accommodation market in the UK has seen substantial growth over the past decade, driven by increasing student numbers, including a significant proportion of international students.

The market is characterized by its resilience and has shown strong performance even during economic uncertainties. According to recent reports, the sector is expected to continue growing, with investments expanding beyond traditional university cities to emerging education hubs.

Factors Driving Demand for Student Accommodation

Several factors contribute to the high demand for student accommodation in the UK, making it an attractive investment opportunity:

•  Increasing University Enrolment: The UK’s higher education sector continues to grow, with universities experiencing rising enrolment figures each year. This growth is bolstered by the reputation of UK universities and the quality of education offered.
•  International Students: The UK is one of the top destinations for international students, who often seek high-quality, convenient accommodation close to their institutions. The demand from this demographic is particularly strong and stable.
• Limited University Housing: Many universities cannot provide enough on-campus accommodation to meet the demand, leaving a significant portion of students seeking housing in the private sector.
•  Urbanization and Mobility: The trend of students moving to major cities for education contributes to the demand for centrally located student housing. Additionally, the mobility of students, both domestic and international, necessitates flexible, short-term housing solutions.

Reasons Why Student Accommodation Investment is a Good Idea

The allure of investing in student accommodation lies in several key factors that underscore its potential for high returns, resilience, and diversification. Here’s a deeper dive into why this asset class is considered a wise choice for many investors.

High Demand

The demand for student accommodation in the UK is underpinned by several robust factors:

•  Growing University Enrolment Rates: The consistent increase in student numbers, driven by both the domestic population and the international appeal of UK higher education, ensures a steady demand for student housing.
•  International Student Influx: The UK’s reputation as a global education hub attracts a significant number of international students each year, many of whom prefer the convenience and security of purpose-built student accommodation (PBSA) or well-located private rentals.
• Limited University-Provided Housing: With many institutions unable to supply enough on-campus accommodation to meet demand, students turn to the private sector for housing, creating opportunities for investors in both PBSAs and HMOs (Houses in Multiple Occupation).

Attractive Yields

The rental yields from student accommodation often surpass those from traditional residential properties, thanks to higher per-room rental rates and the ability to rent out multiple rooms in a single property:

•  Comparison of Rental Yields: On average, student accommodation offers higher rental yields due to the capacity to charge per room in shared properties and the higher density of tenants. This can significantly enhance the investment’s profitability compared to single-family homes or standard apartments.
• Case Studies or Examples: Many investors have found success with student accommodations, particularly in major university cities where the demand is high. For instance, PBSAs in prime locations have shown to deliver yields upwards of 6-7%, a figure that is notably higher than the national average for traditional residential property investments.

Recession Resilience

Student accommodation has demonstrated a remarkable ability to withstand economic downturns:

•  Performance During Economic Downturns: The demand for education and, consequently, student housing tends to remain stable or even increase during recessions, as individuals seek to upskill or retrain.
• Stability of Education Sector: The inherent stability of the education sector, underpinned by both domestic and international demand for UK higher education, supports the continuous need for student accommodation, making it a less volatile investment compared to other real estate sectors.

Diversification

Incorporating student accommodation into an investment portfolio can enhance diversification and risk management:

• Role in a Diversified Investment Portfolio: Student housing can provide a counterbalance to other investments, offering a different set of market dynamics and drivers. This can help reduce overall portfolio volatility.
• Risk Mitigation: By investing in a variety of property types within the student accommodation sector, such as PBSAs, HMOs, and studio apartments, investors can spread risk and capitalize on different market segments, further stabilizing returns.

Key Factors to Consider Before Investing in Student Accommodation

Investing in student accommodation can be lucrative, yet it requires careful consideration of various factors to ensure the success and sustainability of the investment. Here are the key aspects every investor should evaluate before diving into the student housing market.

Location and Proximity to Universities

• Strategic Importance of Location: The location of your investment is paramount. Properties within walking distance or a short public transport ride from universities are in higher demand. Proximity to campus not only increases the property’s appeal to students but can also command higher rental rates.
•  Access to Amenities: Consider the surrounding infrastructure and amenities. Access to shops, cafes, libraries, and other student-centric services can significantly enhance the attractiveness of the property.

Understanding Your Target Demographic and Their Preferences

•  Student Needs and Desires: The student market is diverse, including domestic and international students, undergraduates, and postgraduates. Each group may have different priorities, such as budget constraints, desire for social spaces, or the need for quiet study areas.
•  Amenities and Features: Offering high-speed internet, communal study areas, and secure bike storage can meet students’ needs and preferences. Understanding these requirements and incorporating them into your investment can set your property apart.

Financial Analysis: ROI, Cash Flow, and Capital Appreciation Potential

• Return on Investment (ROI): Calculate the potential ROI, considering both rental income and the possibility of capital appreciation. Areas with strong student demand tend to offer good prospects for capital growth.
• Cash Flow Analysis: Ensure the rental income covers all expenses, including mortgage payments, maintenance, management fees, and vacancy periods. Positive cash flow is crucial for the investment’s sustainability.
• Capital Appreciation: While immediate rental yield is important, consider the long-term potential for capital appreciation. Investing in areas with planned infrastructure improvements or in the path of development can enhance this potential.

Legal and Regulatory Considerations

•  Understanding Local Regulations: Familiarize yourself with the legal framework governing student accommodation in your area, including any licensing requirements for HMOs, safety regulations, and standards for rental properties.
• Planning Permissions: If you’re considering developing new student accommodation or converting existing properties, be aware of the need for appropriate planning permissions and the potential challenges therein.
•  Compliance and Safety: Ensuring the property meets all health and safety standards is not only a legal requirement but also critical for attracting students. This includes fire safety, gas safety, and electrical compliance checks.

Challenges and Considerations of Student Accommodation Investments

While student accommodation investment offers numerous benefits, it also comes with its own set of challenges and considerations. Understanding these factors is crucial for investors to navigate the market effectively and maximize their returns.

Management Intensity

Student properties require more hands-on management compared to traditional residential properties. Challenges include dealing with higher tenant turnover, maintaining the property during frequent move-ins and move-outs, and addressing the specific needs and issues of a younger tenant base.

To mitigate these challenges, investors can employ professional property management companies specializing in student accommodation. These firms are adept at handling high turnover rates, maintaining properties, and ensuring compliance with relevant laws and regulations. Alternatively, investors might consider leveraging technology and property management software to streamline operations, from rent collection to maintenance requests.

Market Saturation and Competition

In prime university locations, the market for student accommodation can be highly competitive. New developments are continually being introduced, raising the bar for amenities and services offered. This competition can pressure rental yields and occupancy rates.

To differentiate their offerings, investors should focus on location, quality, and value-added services. Properties close to campus, with high-speed internet, modern amenities, and flexible lease terms, tend to be more attractive to students. Building a strong brand and community around the property can also enhance its appeal.

Regulatory and Market Risks

The student housing market is subject to local and national regulations, which can change. These may include planning permissions for new developments, health and safety standards, and licensing requirements for Houses in Multiple Occupation (HMOs). Changes in these regulations can impact the feasibility and profitability of student housing projects.

Shifts in university enrolment can pose a risk to student accommodation investments. Factors such as changes in tuition fees, the popularity of online learning, and international student visa policies can influence demand for physical accommodation near universities.

To navigate these challenges and considerations, investors should conduct thorough due diligence, stay informed about market and regulatory trends, and adopt flexible strategies that can adapt to changing market conditions. Engaging with local communities, universities, and industry professionals can provide valuable insights and help investors make informed decisions. By carefully managing these aspects, investors can position their student accommodation portfolios for success in the dynamic UK market.

Investment Strategies for Student Accommodation

When it comes to investing in student accommodation, there are several strategies that investors can employ, each with its own set of benefits and considerations. Whether you’re a seasoned investor or new to the real estate market, understanding these strategies can help you make informed decisions and align your investments with your financial goals and risk tolerance.

Direct Investment vs. REITs and Funds Focusing on Student Housing

1.  Direct Investment: This approach involves purchasing and managing properties directly. It offers investors full control over their investments, potentially higher returns, and the ability to leverage property value appreciation. However, it also requires more hands-on involvement in property management and a deeper understanding of the local student housing market.
2. REITs (Real Estate Investment Trusts) and Funds: For those looking for a more hands-off investment, REITs and funds that focus on student housing offer an alternative. These investment vehicles allow individuals to invest in a diversified portfolio of student accommodations without dealing with the day-to-day management of properties. While this reduces direct control and potentially offers lower returns than direct investments, it also spreads risk across multiple properties and requires less time and real estate expertise.

New Development vs. Purchasing Existing Properties

1.  New Development: Investing in the development of new student accommodation can offer high returns, especially in areas with growing student populations and limited housing options. This strategy allows for the creation of properties that meet current market demands and preferences. However, it involves significant upfront capital, longer timeframes to realize returns, and higher risk due to construction and development challenges.
2. Purchasing Existing Properties: Buying existing student accommodation or properties suitable for conversion can provide immediate income and require less initial investment compared to new developments. This strategy can be particularly effective in well-established student areas with proven demand. Investors should focus on properties with potential for value addition through renovation or improved management practices to enhance returns.

Single-Property Investment vs. Portfolio Approach

1.  Single-Property Investment: Starting with a single property allows investors to gain experience in the student accommodation market with a relatively lower level of risk and investment. This approach is suitable for those new to real estate investing or with limited capital. It provides an opportunity to learn about property management and student housing dynamics on a manageable scale.
2. Portfolio Approach: Building a portfolio of student accommodations diversifies risk and can lead to more stable income streams. This strategy is suited for investors looking to scale their operations and capitalize on different market conditions across various locations. A diversified portfolio can balance properties with high yield potential and those offering stable, long-term growth, providing a hedge against market fluctuations.

Target Higher-Net Student Demographics

The key to higher yields for student property investors is to target specific student sectors. For example, international students tend to pay more for accommodation and investors would do well to consider universities that attract a high number of foreign students.

As a matter of fact, UK universities have experienced a 17.1% growth in applications from foreign students, namely from non-EU countries like the US (60% increase) and China, both of which are more likely to opt for a PBSA.

Postgraduate students also tend to pay more and seek accommodation away from traditional student areas or housing more suitable for partners and families, which is often in short supply.

Purchase a Student Property at the Right Time

With the university year starting in September, most students begin their hunt for accommodation close to one year in advance. Investors should try to ensure their property is available to let when students are looking to move in based on the academic term to avoid vacant accommodation over long periods.

Offer Good Quality Accommodation

Today’s students are becoming increasingly discerning in the types of accommodation they seek out. At the same time, private investors face increasing competition in certain areas from purpose-built student accommodation blocks and student-focused developments. It’s essential that student landlords offer a good standard of property and choose housing with well-appointed communal living areas and ample kitchen and bathroom space to get a higher quality of tenants and better yields.

In addition, it is also important to ensure that the property is well-maintained and in good condition. This includes regular maintenance and repairs, as well as making sure that all safety regulations are met. Also, small touches can make a big difference in terms of tenant satisfaction and help attract high-quality tenants who are willing to pay higher rental rates.

How did the Pandemic Impact Student Property Investment?

The Coronavirus pandemic presented a year of uncertainty and upheaval not only for the property market, but for higher education. The student housing sectors were hit by the pandemic as campuses closed and many students returned home during national lockdowns.

While investors need to keep the legacy of the pandemic on the student accommodation sector in mind, the university experience is about more than just getting a degree. For most students, the appeal of moving away from home for the first time, the social and community aspects that cannot happen virtually are a huge part of the appeal, and we still think student housing is a great investment that, on the whole, remained resilient throughout the Covid-19 pandemic.

As data shows, student property investment went through the roof in 2020! Property Investors spent an astonishing £5.77 billion in the PBSA sector, according to Savills. This goes to show that property investors consider student property as a lucrative, long-term investment.

What are the Best Places to Invest in Student Accommodation in the UK?

Bristol & Student Accommodation

Bristol University is a top 10 UK university popular with national and international students. The city’s main universities, the University of Bristol and University of West England Bristol, are home to over 56,000 students as of 2021 – an increase of 18% in the last five years. In addition, the surrounding area is home to the University of Bath and Bath Spa, putting a large number of students in the catchment area.

The good news for property investors is that this thriving university town is currently experiencing a shortfall of university beds with an additional 6,400 needed by 2028. Now is a good time for investors to consider a student investment property in Bristol.

Manchester & Student Accommodation

This northern city is home to five of the UK’s leading higher education institutions and the University of Manchester ranks in the global top 30 in the QS World University rankings and attracts students from all over the world. Demand for student properties currently exceeds supply, and with so many international students, there is a good opportunity for high yields in more luxury-end students accommodation which can deliver higher returns to investors.

Leeds & Student Accommodation

Home to one of the UK’s most popular universities, Leeds presents a good investment opportunity for buy-to-let student property. The University of Leeds welcomes over 9,000 international students each year, and with the largest cluster of higher education institutions outside London, each year the Leeds City Region’s 9 universities produce 38,900 graduates.

With the city’s development and popularity, rental costs for student accommodation are increasing and a student property in Leeds can make a good investment.

Birmingham & Student Accommodation

As the UK’s second-largest student city, Birmingham is home to five universities – Aston, Birmingham City, the University of Birmingham, University College Birmingham and Newman University College. The student population sits at around 80,000 and with strong lifestyle offerings, it remains a popular location for local and international students, making it a city investors should consider.

Liverpool & Student Accommodation

The buy-to-let student market is thriving in Liverpool, making it a good location for a student property investment and one of the city’s fastest-growing property sectors.

The University of Liverpool, Liverpool John Moores University, Liverpool Hope University and Edge Hill University produce more than 30,000 graduates every year from home and abroad, and there is strong demand for student rental property due to a shortfall in student accommodation which means shared housing remains an attractive investment.

Sheffield & Student Accommodation

This northern university city is home to the University of Sheffield and Sheffield Hallam and a student population of over 63,000. With student property more affordable to purchase than residential property, investing in student property in Sheffield can present opportunities to first-time investors with a lower budget.

Nottingham & Student Accommodation

Home to The University of Nottingham and Nottingham Trent, Nottingham has over 60,000 students in the city. A popular destination for international students, over one-quarter of the student population is from overseas.

Student rental property is in high demand, making targeting the Nottingham student rental market a lucrative investment. With high yields and low vacancy rates, Nottingham is a strong candidate for investors looking to purchase a buy to let property.

Want to know more about these locations, check out our article called Best Student Accommodation Investment Areas.

When considering whether investing in student property is a good investment, there are plenty of factors to consider. But by choosing buy-to-let student accommodation of the right type and in the right location, investors can achieve decent returns. Get in touch to find out more about student property investment opportunities in the UK.