How to Invest in Student Accommodation: A Guide to Profitable Opportunities

Investing in homes that are specially designed to satisfy the demands of students is referred to as “student accommodation investment.” Due to the strong demand and the expanding global student population, this market niche has grown in popularity.

Additionally, because there are always new students moving in during the academic year, rental income from student housing is typically consistent. This may offer investors a steady stream of revenue.

The most recent figures available for UK student housing indicate that by 2026, 2.2 million students will require housing. That represents an almost 39% rise from 2021. However, there may be a 621,373-bed shortage in 2026, so there is a chance.

Let’s examine all of the possibilities and discuss how to make sensible lodging investments.

Why Invest in Student Accommodation?

The primary driver of the student housing market is the enrolment rate at universities and colleges. Historically, higher education has seen stable or even increased enrolment during economic downturns, as individuals strive to enhance their qualifications or change careers when job markets are challenging.

Unlike other real estate sectors, which may experience fluctuating demand based on economic conditions, the student housing market is less sensitive to economic cycles. This is because demand is primarily driven by the need for education rather than economic prosperity.

Universities and colleges are located in various geographic locations, including cities and towns with different economic profiles. This diversification helps mitigate risks associated with economic downturns that may more specifically impact certain regions.

Many student housing projects benefit from direct or indirect support from educational institutions and sometimes from government programmes. This can include funding, subsidies, or favorable zoning laws, all of which support the market even in less favorable economic conditions. Due to these factors, the student housing market not only demonstrates resilience in downturns but can also offer opportunities for growth and investment.

It should be noted that investing in student housing differs greatly from other types of property investments, such as residential or commercial properties. In terms of yield and ROI, student housing frequently outperforms regular residential properties. This is because you can rent out rooms rather than entire units, potentially increasing total rental income. Demand is largely steady, driven by the academic calendar and student enrollment rates. However, it may fluctuate due to changes in university policy, an influx of overseas students, and developments in online education.

Evaluating the Profitability of Student Accommodation Investments

We can determine whether investing in student homes is a good investment based on an evaluation of profitability.

In order to ascertain the profitability of student housing, we can examine rental yields, occupancy rates, and long-term market trends.

Student housing that offers larger rental returns than conventional residential homes is referred to as having a rental yield. Rental returns in large university cities can be as high as 5% to 8%, which is far higher than the national average for residential real estate.

Another important metric is occupancy rates. Occupancy rates are often high because of the ongoing need for student accommodation, which is fueled by university enrolments.

Because more people prefer to register in higher education during economic downturns, there is a reason why the demand for student housing has proven resilient even during them.

Case Study Examples:

Case Study #1: A prosperous Manchester investor has managed a collection of residences for students close to the University of Manchester. They stated that consistent demand and low vacancy rates were the main contributors to their 10% yearly return on average during the previous five years.

Case Study #2: High-end student residences were created from an old dormitory in Birmingham by a group of investors. Their 12% return on investment was made possible by premium rents from overseas students who were looking for high-quality housing, even though their upfront costs were greater.

How and Where to Invest in the UK?

5 Steps Key: How to Invest in Student Accommodation?

1. Research the Market

• University Locations: Focus on cities with one or more universities that have a high influx of students. Cities like London, Manchester, Edinburgh, and Birmingham are popular due to their large student populations.
• Demand and Supply: Assess the demand for student accommodation in your chosen location. Look for areas with limited student housing supply or where university-provided accommodation is unable to meet student needs.

2. Choose the Type of Investment

• Direct Investment: Buying a property to rent out to students. This could be a house, apartment, or purpose-built student accommodation (PBSA).
• Indirect Investment: Investing in student property through real estate funds, Real Estate Investment Trusts (REITs), or student accommodation companies that offer shared investment opportunities.

3. Evaluate the Property

• Location: Proximity to university campuses, amenities, transport links, and other attractions for students.
• Facilities: Modern facilities and high-speed internet are attractive to students. Properties that offer unique advantages (like on-site management) can also command higher rents.
• Regulations and Management: Understand the local regulations regarding rental properties. Consider whether you will manage the property yourself or hire a property management company.

4. Financial Planning

• Budgeting: Factor in the purchase price, renovation costs, property management fees, and ongoing maintenance. Also, consider the financial stability during off-seasons when the property might be vacant.
• Financing: Explore financing options. Mortgages for student accommodation can be different from residential mortgages, so speak with a financial advisor or a bank that has experience in this sector.

5. Legal and Compliance Checks

• Licenses: Some student accommodations, especially larger shared properties, may require a House in Multiple Occupation (HMO) license.
• Safety Regulations: Ensure the property meets all health and safety regulations, including fire safety, gas safety, and electrical safety compliance.

Ideas for Available Property 

Manchester is one of the university centers, and there is a high demand for student rental homes. The property we recommend, The Bailey, is located near the city center and the university, has 2 bedrooms and is priced slightly lower than the competition for similar conditions.

If you’re looking to invest in Liverpool, The Roscoe is the right choice. 1- and 2-bedroom apartments in the heart of Liverpool city center, within walking distance of every amenity and expertly designed for the burgeoning rental market.

The Queen Street development incorporates a modern combination of a central location and a high-spec design to create a desirable living space across the increasingly young population of Sheffield. The development comprises apartments with a modern mix of one-bedroom studios, one-bedroom apartments, and two-bedroom apartments and the refurbishment has been carefully designed to cater to the desires of the younger population.

Challenges in Student Accommodation Investment

Student Accomodation

While purchasing student housing offers numerous benefits, there are certain drawbacks that should be taken into account before making the purchase. We would like to draw attention to the following:

1. Market Saturation: The UK’s most well-known university towns, such as Leeds, Manchester, and London, have seen notable advancements in the field of student housing. The possibility of rental increases may be limited by this saturation, and achieving high occupancy rates may become more challenging.
2. Regulatory Changes: Regulations pertaining to licencing and planning clearances might have an impact on investments in student real estate. In order to increase expenses and complexity, local authorities may place limitations on the conversion of properties into Houses in Multiple Occupation (HMOs) or mandate additional licencing for student rentals.
3. Management Requirements: Student rental properties typically demand more hands-on management than other types of rental properties. High tenant turnover, seasonal vacancies, and the need for ongoing maintenance and oversight can all drive up operating costs.
4. Market Dependency: The success of the surrounding educational institutions has a significant impact on the demand for student housing. Occupancy rates and rental income may be directly impacted by variations in the number of students, including those brought on by adjustments in university funding, laws pertaining to international students, or pandemic effects.
5. Economic Vulnerability: Economic downturns may make it more difficult for students to pay their rent and increase the number of cases of rent default. Furthermore, modifications in students.

Key Considerations before investing

1. Location Research: In real estate investing, location is crucial, and buildings close to amenities, universities, and efficient transit systems typically yield strong returns. Determine whether your selected place has attributes that people would find desirable in order to assess the potential for long-term demand there.
2. Market Research: To find out how much demand there is for student housing in the particular area you are considering, conduct market research. Examine enrollment patterns, plans for university growth, and the total number of students enrolled.
3. Types of Student Accommodations: Houses of Multiple Occupancy (HMOs) or purpose-built Student Accommodation (PBSA).  
4. Financial Considerations: The most significant factor is return on investment, which includes evaluating rental yields and comparing them to property prices and operational costs.  

Property Prices and Rental Yields: The purchase price against predicted rental income is an important consideration.

Future Trends in Student Property Investment

The student accommodation market is evolving rapidly, with several key trends shaping its future:

1. Increase in the number of (international) students: The number of students in the United Kingdom continues to rise, with a large increase in applications from international students estimated to reach 60% by 2030. This expansion provides the foundation for the need for student housing.
2. Investment growth: There has been a noticeable increase in investments in the PBSA market. For instance, despite economic uncertainty, record investments of £7.2 billion were made in 2022. It is anticipated that there would be 827,000 PBSA beds overall by 2026, up from 712,000 in 2022.
3. Growth in Rental Prices: It is anticipated that rental prices will rise sharply, particularly in places where there is a considerable shortage of student housing. The average annual increase in rental prices in Great Britain for the academic year 2023–2024 may surpass 5%.
4. Sustainability and environmental aspects: Sustainable and eco-friendly living arrangements are becoming more and more important in the construction of student housing. The ecologically conscious student population finds great resonance with this trend, which increases the allure of these houses.
5. Technology in accommodation management: Technological developments are crucial to enhancing the appeal and management of dorms. Technology is being incorporated into homes with smart home features and digital property management systems to improve operations and the living conditions for students.

These trends indicate a dynamic industry that has several prospects despite economic difficulties stemming from the persistent demand for student homes in the United Kingdom.

Conclusion

Investing in student accommodation in the UK is a profitable possibility due to the steady demand generated by rising worldwide student populations and university enrollment rates. This sector is very resistant to economic downturns, typically experiencing stable or growing demand while other sectors struggle. 

Strategic investments, particularly in high-demand university areas, can result in substantial returns, with rental earnings outpacing traditional residential buildings. 

Thorough market research, picking the appropriate investment, and knowing market rules and economic conditions are all critical tasks. 

While difficulties such as market saturation and regulatory changes must be addressed, the ongoing demand for student accommodation, combined with support from educational institutions and government programmes, makes this an attractive business opportunity. 

Future trends indicate ongoing growth, led by expanding international student numbers.

FAQ

1. Why invest in student accommodation? There are various reasons why investing in student housing is beneficial, including the constant intake of students and the constant need for homes, as well as government support in the form of scholarships even during times of crisis.
2. What is the demand for student accommodation in the UK? According to the latest UK statistics, there’s going to be 2.2 million students needing accommodation by 2026.
3. How much does student accommodation cost per month? Student accommodation in the UK will cost a minimum of £1,023 a month, or up to 9 months or £9207, as requested by UK Visa and Immigration. The average weekly accommodation rent is £150.
4. Do international students have the right to rent in the UK? Yes, they have rights if they apply for a UK visa.
5. Guarantors and Deposit? A guarantor may be necessary to rent student housing, especially if you choose to pay in installments. Deposits are typical, however, they are normally recoverable at the conclusion of your tenancy if no damage occurs.