UK Student Property Investment
Purpose built student accommodation investment is one of the UK’s best performing asset classes and offers some of the highest returns on the market.
(First published in 2021.)
Is student accommodation a good investment?
Over the last 10 years, the UK’s student accommodation investment sector has become a stand-out choice for property investors.
Once a niche asset class, the popularity of student property has seen the market segment now worth £51 billion (Knight Frank). Its rise to prominence in recent years has been partly due to the sector’s evergreen nature – come rain or shine, there will always be university students and a need for accommodation to house them close to their chosen university campus.
Globally known for its academic excellence, the UK is home to some of the best-ranked universities with 90 included in the QS World University Rankings 2021. With 4 UK universities are ranked in the global top 10, the education system is particularly appealing to international students.
The latest data released by UCAS has shown that there are 2.4 million students currently enrolled in universities across Great Britain, and this amount is forecast to rise by an extra 500,000 students by 2030 (JLL).
With so many positive factors, student accommodation has emerged as a good investment for investors and landlords who want to secure a reliable rental stream from a fully managed property.
What is a student accommodation investment?
Purpose Built Student Accommodation is the most popular way to invest in this lucrative market segment and offers investors a fully managed approach to buy-to-let investing.
Individually priced en-suite or self-contained studio apartments within a development are sold on a long leasehold basis to individual investors and managed by a specialist operator.
The low entry level nature of the individual student rooms for sale within a development means that there is typically a 0% Stamp Duty rate payable on the unit.
Houses in Multiple Occupation is another option for student accommodation investors however, several new regulations have made this option less appealing to buyers.
What’s more, a higher rate of Stamp Duty is payable on an HMO as it they are generally classed as a residential buy-to-let investment. HMOs are therefore an expensive option for those entering the student accommodation investment market.
Town Square Invest specialises in sourcing profitable purpose built student accommodation investment opportunities across the UK. Contact us for more information about our current projects and the latest availability.
Is this the right type of investment for you?
It is not for you if:
- You are looking for a visa
- You or a relative want to live in the property
- You are looking for a holiday home
- Need to flip for a quick profit
- You want to enter a stable property market
- You want to secure reliable rental returns
- You understand that property values fluctuate
- You are looking for a fully managed asset
Covid-19 and student property
The pandemic has changed the shape of learning globally, with universities adapting their teaching to a mixture of online and campus learning. For investors considering entering the student property market, it is important to remember that certain classes are not able to move online (medical and health, science and technology for example), therefore, campus learning is vital. For these students, living in safe and modern accommodation is more important than ever before.
With the roll-out of a vaccine now underway across the UK, universities are set to show their resilience as more young people enter the education system to continue their learning.
What’s more, the demand for university places tends to increase when the UK’s unemployment rate is higher, meaning that the demand for student rooms could increase at a higher pace.
Brexit and student intake
After the USA, the UK is the most popular destination for international students however, since the UK left the EU, the number of European students has declined. The fall in EU applicants is partly because of the lack of uncertainty surrounding a Brexit deal, and questions around what the landscape would look like for European students studying at British universities post-Brexit.
As the dust settles on the UK’s departure from the EU, there remains plenty of positives for EU students including favourable exchange rates and a generous post-study work visa system.
Announced by the government in September 2019, the new system allows students to remain in the country for 2 years after graduation – up from just four months previously. There is also a three-year visa available for Ph.D. graduates.
Outlook for student numbers
End of cycle application data from UCAS revealed that 728,000 students applied to start a full-time undergraduate course at UK universities during the 2020/21 academic year. This figure marked nearly 22,500 more applicants than the previous year.
The same report highlighted a decrease of EU students of almost 40% however, looking beyond Europe, applications from overseas students increased by 17.1% – with a strong demand from China (up 21.5%) and India (up 25.5%).
Despite the decline of EU students, overall European students do not make up a large market share and, according to Savills, overseas students are 60% more likely to stay in PBSA. What’s more, early indications show that applications will increase again for the 2021/22 academic year, with an 8.4% increase in applications reported when compared to the last cycle. The increase coincides with a swell in the UK’s 18-year-old population.
Student accommodation investment yields
As UK university applications increase as a result of an increase in the 18-year-old population, there is an increasingly positive outlook for student property yields.
With the UK opening up and people adapting to the ‘new normal’, 97% of universities plan to teach courses in person in 2020/21.
For student accommodation investors, yields should be robust as demand for housing increases in line with an uptick in student numbers.
Town Square Invest’s student property investment opportunities provide investors with an assured rental yield for a predetermined time, meaning that investors will generate a return whether their unit is occupied or not.
Fully Managed Asset Class
No matter where you are on your investment journey, a fully managed property is one of the best ways to sure a passive income stream.
Whether you are a seasoned landlord, an overseas investor, investing to boost your retirement income, or a first-time investor, a fully managed asset might be the best option to free up your time whilst generating a rental income.
From tenant checks and paperwork to ensuring your income is paid on time, a fully managed student accommodation investment is a great way to secure a reliable passive income with no work required.
FAQ and Glossary
Update: 2023
Since this guide was written, the UK residential property market has seen significant change. As a result of the cost-of-living crisis and turbulence in the financial markets after the September 2022 mini-Budget, conditions became more challenging for investors. However, the market has remained surprisingly resilient and many indicators now suggest that the outlook may be improving.
Capital Growth
In March 2023, ONS released its January house price index, which showed that the year-on-year rate of growth had slowed to 6.3%. This is slower than during much of 2021 and 2022 but, as many commentators have discussed, this represents a slow readjustment towards longer-term norms. There was no price-crash as some pundits had suggested and instead, the market has continued to be characterised by resilience and a good deal of stability. This is underpinned by an enduring imbalance between intense demand for property and very restricted supply. As a result of this imbalance, many sources expect capital values to return to growth in 2024 and to remain on an upward trajectory thereafter.
Rental Values
Despite the cost-of-living crisis, rental values have grown very quickly, more or less in line with inflation, which was running at just over 10% in the fist quarter of 2023. In March and April, different sources quoted growth rates of between 8% and 11%, with even higher rates in certain towns and cities.
Interest Rates
The Bank of England announced a succession of rises in the Bank Rate in 2022 and 2023. In March 2023, it climbed to 4.25%. However, while the base rate was rising, lenders were actually cutting some of their rates. As the dust settled after the mini-Budget, market competition prompted banks and building societies to introduce more attractive rates. Moreover, in April 2023, the IMF announced that it regarded the current inflationary conditions as a short-term aberration and expected natural interest rates to fall slowly across all developed nations. The forecast, which extends as far as 2050, suggests that investment conditions could improve steadily over the next decade and beyond.