Purpose built student accommodation has grown from a niche investment vehicle into a mainstream asset since the turn of the century.
It has long been recognised by industry experts as the highest yielding property investment in the UK, and the number of students living in this accommodation has more than doubled over the last decade – making it one of the few property sectors to deliver positive rental growth year in, year out.
It is gaining popularity among private investors, who see it has as a lucrative option at a time when new government regulations are eroding yields in the buy-to-let sector – making alternative sectors all the more appealing.
James Harrington, Business Development Manager at UK student property investment specialists, Emerging Property, gave us his Top 5 reasons behind the sector’s unrivalled success.
- Record student numbers
University education is considered a vital stepping stone to success in the modern world. This is backed up by government figures indicating that UK graduates earn £9,000 more than non-graduates each year (Department for Business, Innovation and Skills).
Purpose built student accommodation is in high demand from this large student population, which has doubled in size over the last 20 years. And with record student numbers for the last four years in a row, this growth is showing no sign of slowing down.
The UK also has the world’s second ranked education system (HESS), and is also the second most popular global destination for the six million students studying overseas
This is a key demographic for purpose built student accommodation, constituting over 50% of total occupancy in many areas, and their number is expected to double in size between now and 2025.
- Undersupply means high occupancy
Purpose built student accommodation is the top housing choice for students, yet the supply of new developments has long lagged behind the exploding growth in student numbers.
With only 26% of students able to access this accommodation, CBRE estimates that occupancy levels across the UK sit at an impressive 99% – while 1.7 million students have to settle for often substandard housing in the private rental sector.
This means that even a three-fold increase in supply would have a limited impact on occupancy levels.
- Property looked after on your behalf
Purpose built student accommodation have professional management operating onsite around the clock. These teams handle every operational aspect of the property – from marketing and rent collection through to maintenance and repairs.
This makes this property investment ideal for remote buyers, who receive an effortless income, and explains why overseas money accounted for 64% of all sector investment in 2016 (Savills Student Housing Report 2017).
Purpose built student accommodation can have as many as 500 student units, and the large size of these developments allows the management company to spread operations costs between all individual apartment owners – making it a far more cost-effective property investment than those found in the private rental sector.
- Fixed high NET yields
Purpose built student accommodation is offered to buyers with yields of up to 10% NET, fixed for up to 10 years. This is considerably more attractive than the buy-to-let sector, where ongoing costs and increased tax responsibilities make income unpredictable.
Buyers receive a true NET income, and receive exactly the same amount of money in their bank accounts each quarter.
These fixed income agreements mean that buyers actually receive their yield regardless of the property’s performance – a dynamic that incentivises the strong performance of the manager and developer. while providing buyers with real peace of mind.
- Great resale options
Resale options are central to the long-term success of any property investment, and the growing popularity of this sector has seen the resale market blossom in recent years.
Since potential buyers have no interest in living in these developments, the proven ability of a property to return 7-10% NET annual income each year means that these properties usually sell within 4-6 weeks – far less than the average time a residential property sits on the market.
As a commercial property investment, the remaining terms of the fixed income agreement are fully transferable, and buyers can receive up to 40% capital growth through yield compression.