The UK’s student housing market is one of the strongest property sectors you can invest in. Over the last decade, student property has become the fastest growing asset class, and investors across the world including the UK, UAE, Hong Kong and Kuwait among others are continuing to explore investment opportunities in this sector.
Even through global pandemics and economic downturns, purpose built student accommodation (PBSA) has thrived. There will always be a need for PBSA, as young people see education as their way to success, when the job market becomes increasingly tougher to break into.
The lockdowns caused by Covid-19 are a testament to this fact, as university applications rose by 1.6% this year from 2019. Thousands of people in the UK are being made redundant, so young people are looking to “upskill” so they become more desirable to potential employers. The widespread appeal of PBSA has also risen, as the amount of students searching online for this type of accommodation in July 2020 increased by 25% when compared to search volumes from July 2019.
As the popularity of this asset class continues to grow, we explore what makes a good student accommodation investment.
Knowing which city to invest in is one of the most important factors when considering investing in student accommodation. Many cities across the UK are well known for having large student populations and world class universities, and the prestige of a UK education draws in thousands of international students every year. Almost 20% of the UK student population came from overseas in the 2019/2020 academic year; a percentage that’s predicted to rise in the coming years.
London has a lot to offer investors looking at the student market, but there are many locations in the UK that could result in a higher rental yield due to lower purchase prices and a sharp growth in student populations. We’ve found the following cities offer fantastic value for money, all with their own unique benefits to you and to the students:
- Liverpool has a student population of 70,000
- The city is highly popular with international students — 8000 students from Shanghai alone study at the University of Liverpool
- Liverpool needs 50% more PBSA units to accommodate the current demand
- Investors can expect to achieve between 7% and 9% rental returns
- Stoke-on-Trent has undergone major regeneration in recent years, becoming the No.1 city in the UK for employment growth
- Employers that students can approach for graduate schemes and work placements include: Jaguar Land Rover, Bet365, Pirelli and Vodafone
- There are two major universities in the city: Keele and Staffordshire
- Stoke-on-Trent has a student population of 25,760, which is growing every year
- The Welsh capital city is an emerging PBSA market according to UK experts
- Cardiff has three universities and a population of 43,000 students — over 9000 students come from overseas
- The demand outstrips the supply of PBSA at a ratio of 2.5:1
- Rental yields in Cardiff are among the highest in the UK, offering investors an average return of 5.59%
- The city is consistently ranked as No.1 for student accommodation investment by leading UK property experts
- Manchester has the second largest student population in the UK with over 100,000 students
- There are four major universities in the city: The University of Manchester, Manchester Metropolitan University, The University of Salford and The University of Bolton
- Investors see an average rental return of 5.55%
For more details on the potential of these four cities, make sure to read our full article, Where to Buy Student Accommodation in the UK.
The PBSA Development & Amenities on Offer
A good student accommodation investment is often defined by the PBSA development itself. Today’s students want high quality living quarters, as they’ve been accustomed to a life of moderate luxury.
This is creating ample opportunities for investors. The UK’s total undersupply of PBSA units versus the demand is at a ratio of 3:1, meaning many students have to make do with outdated halls of residence and HMOs that are not fit for purpose. With such a limited supply, investors are making high returns on their investments.
Surveys carried out by Knight Frank and UCAS revealed that students are particularly interested in quality amenities. We have detailed the most common responses below, including the percentage of students who said they were willing to pay a premium for each amenity on offer:
- Fast wifi: 74%
- Larger bedroom: 48%
- On-site gym: 47%
- 24-hour security: 45%
- On-site laundrette: 39%
82% of the students surveyed also identified the quality of their accommodation as being either “important” or “very important” in regards to their mental health.
When asked, a significant percentage of students said the following were important in supporting their wellbeing:
- Organised groups to combat loneliness: 81%
- Good quality communal or social space to improve interaction: 77%
- Practical skills workshops: 75%
- Accommodation staff trained in student wellbeing / signposting to support services / strict anti-social behaviour policies: 72%
- An on-site wellbeing practitioner / workshops on how to spot mental health issues and offer guidance: 71%
In halls of residence and HMOs, these support services aren’t available to students unless their university has a strong support network in place.
Today’s students are more likely to value quality living quarters and their own mental health before anything else. A good student accommodation investment will address these needs, giving the students exactly what they’re looking for to cope at university.
Spaces for Social Interaction
It’s estimated that one-in-three students experience depression or loneliness while at university. Exam stress, financial worries, relationship difficulties, being away from their family and the quality of accommodation are some of the main factors why.
To make sure students don’t feel lonely, it’s important that they form strong bonds with fellow students as soon as possible. The best way to ensure this happens is by providing the students with social spaces where they can relax and unwind.
While many PBSA properties off some amenity space, it’s not always fit for purpose, which can discourage people from using the area. A well-designed space is integral to a student accommodation investment, as it gives students an area they can use to form close connections. As such, dedicated group study zones, roof-top terraces, game rooms and communal kitchens are highly sought after in PBSA.
It’s vital to deliver on these needs so you can retain the students for the duration of their course. Many students who find friends through their accommodation don’t want to leave in the following year, as they don’t want to break the bonds they have made. If your student tenants are happy where they are, they’re more likely to stay, which keeps your PBSA at capacity. In turn, this keeps your ROI as high as possible.
Appealing to International Students
The international student market has grown exponentially in recent times. Last year, there were over 485,600 students studying in the UK from overseas, accounting for nearly one fifth of the entire student population.
Across the globe, the UK’s international student market is the second largest in the world after the United States. As such, it’s important to appeal to this large demographic for your student accommodation investment to be successful.
For every one-in-six non-European students, it’s the parents or wider family members who pay for accommodation. This is crucial for the UK market, as according to Universities UK, the top five territories for sending international students to the UK are:
- The United States
- Hong Kong
Only four countries from Europe made the top ten, showing us that the UK appeals more to the Asian market than the European. It’s believed that one of the reasons for this is value for money, as Asian currencies generally perform quite well against the UK pound sterling. In comparison, €1 is equal to £0.89 at the time of writing.
Since it’s the family handles the expense, they want to be sure that PBSA offers:
- Quality living standards
- A safe location
- Good value for money
- A dedicated learning environment
Once the parent or guardian is satisfied that accommodation meets these needs, it’s vital that the student enjoys their new living quarters so they aren’t tempted to ask their family for permission to leave.
The constant change of student tenants is an issue UK PBSA providers are always looking to stay on top of. International students are statistically more likely to stay in the same accommodation for the duration of their course, with 42% of the students surveyed by UCAS and Knight Frank identifying staying in the same place for more than one year as “extremely important.”
In order to retain tenants, some PBSA providers offer incentives to students. The study carried out by UCAS/Knight Frank revealed 40% of first-year students were offered an incentive, and 16% said they would have moved elsewhere without it.
A Hands-Off Investment
The best investments are the ones that require little input on your part, as the less time you have to spend on your investments, the more time you have to source new opportunities. This is what makes student accommodation a good investment; the day-to-day running can be left to a management team.
Even if you’re not based in the UK, you can be confident that your investment is being managed by professionals who understand how to run successful properties and how to interact on a personal level with students. It’s their role to:
- Engage with the students
- Find and retain residents
- Handle maintenance issues
- Provide you with updates when you require them
Your management team will also do their best to improve student morale. Many PBSA operators arrange events and activities for their residents, which goes a long way in boosting the students’ mental health. It’s thanks to the expertise of management teams that PBSA has gained such a strong reputation as an environment that benefits student wellbeing. The more the reputation of PBSA grows, so too will the demand for this asset class.
Going Ahead With a Student Accommodation Investment
A student accommodation investment can be highly lucrative for investors. To find the key to success, remember the following:
- Certain UK cities fair better than others
- Students want quality
- Students want to interact with each other
- You have to appeal to the international market
- Trust in your property management team
If you stick to the information in this article, you’re sure to find student accommodation a profitable venture.
At Treo Investments, we will offer you a full 360 bespoke service, ensuring all the hard work that comes with investments is done for you. We source the best deals available in the UK and conduct through due diligence to future-proof your investment.
For more information on how we can help, don’t hesitate to get in touch with a member of our team.