For generations, the UK has remained an incredibly highly regarded centre of education and is home to some of the top universities in the world. Driven by this demand, student property is an incredibly lucrative investment opportunity and has a proven track record of strength and resilience in times of wider economic uncertainty.
Select Property Group is the exclusive sales partner of Vita Student, the UK’s leading Purpose-Built Student Accommodation (PBSA) provider. With a total of 26 developments in operation or in construction across the UK and Europe’s elite university cities, we’re pleased to share our 2021 guide to investing in student property based on our first-hand insights.
This guide aims to give an overview of the UK student property market, discussing how it has been affected by COVID-19, comparing PBSA with other types of student property, as well as sharing insight on changing student priorities and our latest investment opportunities.
What is student property investment?
Student property investment refers to buying and owning a property for the purpose of letting it out to students and generating returns in the form of rental yields. Student accommodation in prime cities with Russell Group universities presents a high-demand investment opportunity with strong potential to drive high and consistent returns.
PBSA has transformed student property into one of the UK’s fastest-growing property sectors, with investment coming in from all over the world, generating high and consistent rental yields for investors globally.
The most popular types of student accommodation to invest in are PBSA and historically, Student Houses of Multiple Occupancy (Student HMO). But what’s the difference?
1. Purpose-Built Student Accommodation (PBSA)
This type of student accommodation is designed, developed and managed to deliver a high-quality living experience, and has established itself as the strongest student property sector with high demand from domestic and international students. PBSA typically offers a range of amenities including strong Wi-Fi, communal working spaces, building management and security, a gymnasium, events hubs and more. Because these properties are built for purpose, they tick all the boxes of what today’s students are looking for (keep reading for more information on this), encouraging retention for the duration of their study period, allowing investors to take a hassle-free approach.
2. Student House of Multiple Occupancy (Student HMO)
This type of accommodation is a shared student house with a communal kitchen, living area and bathrooms. Typically, these are outdated terraced houses, renovated to accommodate as many students as possible, often meaning small bedrooms and living areas. Demand for HMOs is reducing due to the uplift of other high-quality purpose-built options with more space, better facilities and more central locations.
The student housing market
Despite the uncertainty of the student property market this academic cycle, 2020 was a record-breaking year for PBSA, with GBP 5.77 billion of investment in the PBSA sector in 2020.
It was a similar story of market resilience in the 2008 Global Financial Crisis, as tightening job markets saw more young people looking to gain a higher education, with KPMG referring to the student property sector as ‘largely recession-proof’.
Although some predicted that first-time students would defer their first year due to the pandemic, UK university admissions service UCAS reported a record number of applicants for a university place for 2020/2021.
With universities transitioning to remote studying to accommodate students, some investors have felt cautious about investing in student property based on the assumption that fewer students will live away from home to study. However, the National Student Accommodation Survey 2021 showed that 88% of students still chose live in some form of student accommodation this academic year, on average 21 minutes from campus. Vita Student maintained 100% occupancy rates last year despite the global pandemic, demonstrating the satisfaction of students in their accommodation.
UCAS also reported a 5% increase in applications from overseas students for 2020/2021, reflecting an increasing demand for student accommodation – a positive statistic for PBSA investors as demand for this accommodation has been driven mostly by international students.
Due to spending more time at home than ever before, COVID-19 has led to a widescale trend of renters in general expecting more from their homes. JLL’s 2020 report, Home is… for everything found that the top three tenant priorities were larger living areas, high-quality Wi-Fi and access to outdoor space – all amenities prioritised by the PBSA sector.
Is Purpose-Built Student Accommodation a Good Investment?
Student accommodation is becoming an increasingly popular asset for investors looking to expand their property portfolio. Here are some of the key benefits of investing in PBSA:
1. Lower capital entry, higher rental yields
PBSA is generally cheaper to buy than other types of residential property, yet they have high rental costs due to a high-demand market, meaning strong rental yields for investors. Students are willing to pay a premium for a first-class living experience that offers their desired location, aesthetic and amenities, particularly in cities with Russell Group universities.
2. Hands off, hassle-free experience
Particularly attractive to overseas investors, investing in student property with a reputable developer means a hassle-free investment experience. From completing and furnishing, to tenancy and building management, Vita Student offers an end-to-end service.
3. Students are a desirable tenant demographic
Although first-time student property investors might have concerns over students living in their property, this perception of students as reckless is outdated. Plus, students will usually have a guarantor, giving investors more financial security.
4. Rental guarantee options
Reputable developers often offer a rental guarantee period on off-plan student property, significantly reducing your investment risk and offering peace of mind as the new property establishes itself in the local market.
5. Higher retention rates
If students’ needs are being met, they are more likely to stay for the duration of their study period (typically 3-4 years). Studies show that 75% of tenants are more likely to renew their tenancy if they know one other person in their building. This number rises to 90% for those that know two other people – a great statistic for PBSA as they have a great focus on building a student community.
What students want from their accommodation
Today’s students demand more from their living experience than ever before – better location, better facilities and better management. Purpose-Built Student Accommodation is designed with the tenant experience in mind from the outset, which is why it established itself as the strongest student property sector, prompted by the uplift in demand from students choosing the sector over older-style HMOs and student halls.
In Knight Frank’s 2021 survey, students living in PBSA were asked which amenities they’d be willing to pay a premium for. Here are the top 5:
- Fast Wi-Fi included (66%)
- Larger bedroom (55%)
- On-site gym (51%)
- 24-hour security (45%)
- On-site laundrette (42%)
These amenities are proven to add value to your investment property and are part and parcel of high-quality PBSA. By ticking these boxes, you can make sure you’re providing a first-class living experience, encouraging retention, positive reviews and higher demand. These amenities are not included in traditional HMOs, which usually leave arranging Wi-Fi to the students, have small bedrooms of inconsistent sizes and no security or gymnasium facilities.
A sense of community is another important factor of creating a positive university living experience, which is a top priority of modern PBSA. Vita Student developments hold regular events, incentives and career workshops to encourage students to socialise in a safe and comfortable space. Creating this sense of belonging is crucial for international students who might otherwise be isolated – something which HMOs don’t account for.
How to invest in student property
Although property is a stable investment, any investment comes with risks. Property prices can fluctuate, rental properties can be empty for periods of time, and selling your property isn’t always straightforward. In order to reduce those risks, deciding on the type of student property to invest in, considering the needs of your tenants, finding the right location and investing with the right developer, are all things that should be at the top of your agenda.
At Select Property Group, we take a consultative approach with any investment. We start by discussing your objectives and requirements. We now conduct face-to-face or virtual property tours, helping you make the right decisions for you. We also support investors through each stage in the journey, from initial conversation, through to exit strategy with our in-house brokerage.
A new surge in student numbers for 2020/21 and beyond will likely further increase the demand for PBSA, once again underlining its strength and ability to deliver long-term growth for property investors.