Five reasons why you should invest in student property in 2016
The student property market is continually growing. As the number of UK students increases year-on-year, local councils consistently struggle to keep up with rising demand for quality purpose-built accommodation. In recent years this has led to an influx of private investment, as investors look to take advantage of this increasingly lucrative sector. Student accommodation has grown faster than any other asset class, year-on-year since 2011, and looks set to continue this trend moving forward. We’ve identified the five primary reasons for this boom in popularity, and why an investment in student accommodation could be a lucrative investment for you.
1. High rental yields
Student accommodation offers investors some of the highest yields of any property asset in the UK. As rent prices are driven up by overwhelming demand, investors can expect to receive 7-10% NET yields per annum. This is substantially higher than the average returns of the traditional UK buy-to-let market, where returns in even the most lucrative areas tend to max out at around 6%.
2. Increased demand
The UK’s student population is growing, with UCAS reporting record numbers of applications in 2015. The sector’s growth is driven by a variety of factors, not least the increasing number of international students drawn to the UK by its worldwide reputation for academic excellence. As a central location for world business, the UK is home to branches and head offices for a huge variety of businesses from around the world. This gives students unrivalled access to work placements and internships with some of the world’s biggest and best employers. In addition to this, as the home of the English language, the world’s primary language of business, studying in the UK provides international students the opportunity to sharpen their English-speaking skills; a significant advantage within the employment market.
British students, on the other hand, are motivated by the cultural shift in recent years, towards an expectation of university qualifications amongst employers. As degree-level qualifications become more common, they also become increasingly necessary in order to compete in the UK employment market.
Increases in student numbers are predicted to continue in the coming years, as the Government-enforced cap on the number of students universities can admit has now been lifted. As a result, the number of students studying in the UK is forecast to increase 15-20% over the next five years.
3. Shifting expectations
With students now being forced to pay up to £9,000 per year for tuition, and international students paying even more than this, expectations of accommodation are getting higher. A recent report from Glide Utilities suggests that expectations of an en suite bathroom are becoming industry standard and 61% of students also expect their room to have a double bed. Gone are the days of low-quality, damp-ridden HMOs (Houses of Multiple Occupancy) located miles from the university campus and in desperate need of renovation, and in their place stand sleek, modern, purpose-built accommodation complexes, managed by specialist agencies providing students the very best services. These complexes, in addition to providing students with a more comfortable living environment, often work out cheaper than HMOs, as bills are included and additional facilities (such as gyms and communal game rooms) are often provided free or at a significantly discounted rate.
In recent years many city councils have made the decision to limit, or in some cases completely prevent, HMO licenses being granted to landlords, in an attempt to prevent local families from being priced out of the market. This has further exacerbated the fall of the HMO as the standard accommodation choice, and the rise in popularity of PBSAs.
4. Hassle-free investment
Investing in property generally requires an ongoing investment of both time and money. Buy-to-let landlords are responsible for ensuring their property is suitably maintained for tenants; this includes paying for repairs and general maintenance costs. Not only does this mean added costs, but it also requires substantial input of time and effort.
The majority of PBSA developments are managed by specialist management companies, who will take full responsibility for all of the maintenance and management of the property. These companies are sector experts and typically have strong relationships with the local universities. This means that investors need not worry about interacting with their student tenants, or having to fork out for ongoing costs associated with wear and tear. Instead, investors receive completely passive and hassle-free returns, safe in the knowledge that their property is under the management of competent and highly capable industry experts.
5. Anyone can invest
In the first few years after the introduction of PBSA developments, the industry was very much a ‘closed-shop’, with units not available to individual investors. As the industry has grown, companies like Select Portfolio are now able to offer these highly lucrative investment opportunities at an affordable price, to individual investors. As these properties are fully managed by industry experts, the investments are completely hands-off and so investors do not need to be experts in student accommodation.
The sector’s ongoing shift away from HMOs and towards PBSA developments is attracting an ever-increasing number of private investors, looking to expand their portfolio and take advantage of the exceptional returns that the student accommodation sector has to offer. In 2014, £2.45bn of private funding was invested into the market, with this figure increasing to £4.2bn in the first five months of 2015 alone, according to a report by Savills. The substantial growth of sector investment highlights investors’ confidence in PBSA developments as a sustainable and lucrative asset class.
Select Portfolio has a variety of student accommodation investment opportunities available, in popular university cities throughout the UK. If you’re interested in a highly lucrative and completely hassle-free investment, call our team now on (+44) 01202 765011 or email [email protected] for more information.