The UK sees almost three million students undertake higher education across the country’s 160+ universities each year. As the number of students in the UK grows, so does the demand for university accommodation, with the majority of students living in student-specific properties during their degrees.
Considering the high number of people attending university in the UK, it’s no surprise that student accommodation investment can be a fruitful strategy for those looking to start or expand their portfolio. But is investing in student property truly a good idea? Like any type of property investment, it has its pros and cons, and it may not be for everyone.
Below, we explore the advantages and disadvantages of student property investment, as well as outline how to start doing so — including how Alesco can help.
Student property investment guide
What is student property investment?
Quite simply, student property investment is the process of buying property to rent exclusively to students.
Student accommodation itself refers to residential properties that are lived in solely by those in higher education. There are a few main types:
- University-managed halls of residence: Called ‘halls’ for short, this type of accommodation is typically situated on a university campus, and is lived in by first-year students.
- University-managed rooms and houses: These are properties managed by universities that are similar to regular houses or flats, but have a standardised look and facilities.
- Privately-owned halls of residence: Alternatively called PBSA (purpose-built student accommodation), these are purpose-built student properties that are similar to university-managed halls of residence, but are owned privately.
- Privately-owned houses or flats: Generally the most common type of student accommodation, with most living in privately-owned houses and flats for the majority of their degrees, these are owned by landlords as properties in the private rented sector. This kind of accommodation is usually located in neighbourhoods with a high concentration of students.
When we talk about student accommodation investment, we’re referring to investments in the private properties listed above.
What we like about student accommodation investment
Some of the main benefits of student property investment include:
- Steady demand: The UK has a large and growing student population, resulting in a consistent demand for student housing that continues to grow. This can lead to a relatively stable occupancy rate for landlords.
- Resilience to economic downturns: Education is often considered a priority, even during economic downturns. This can contribute to a steady demand for student housing, as students continue to enrol in universities regardless of economic conditions.
- Attractive rental yields: High occupancy rates and the ability to rent out individual rooms within a property can contribute to high returns when investing in student accommodation. A study from Paragon Banking found that student property yields 13% to 18% above the rest of the market.
- Longer lease terms: Many student accommodation arrangements involve longer lease terms, often aligning with the academic year. This can provide landlords with more consistent cash flow and reduced turnover-related expenses.
- Professional management: Many PBSA developments come with professional management services. This can relieve landlords of many day-to-day management tasks, making it a more passive investment.
- Potential for appreciation: In areas with growing student populations and limited housing supply, there’s potential for property value appreciation over time.
- Innovation in design: Purpose-built student accommodation often features modern amenities and innovative design to cater to the needs and preferences of contemporary students, which can enhance the property’s appeal and rental potential.
Student accommodation investment: areas of consideration
The main areas of consideration before getting started with student property investment are:
- High initial investment: Investing in PBSA often involves a significant upfront outlay, including property acquisition and development costs.
- Market saturation: In some areas, there might be an oversaturation of student accommodation properties, leading to increased competition for tenants and potentially lower occupancy rates.
- Vacancy concerns: Student accommodation occupancy can be seasonal, with vacancies during holidays and summer breaks. This can impact cash flow and require careful financial planning.
- Management challenges: Dealing with multiple tenants, individual leases and tenant turnover can be more complex and time-consuming compared to traditional residential properties. Students might not always treat rental properties with the same level of care as other tenants either, leading to greater maintenance and repair costs.
- Regulatory changes: Regulations related to student housing can change, affecting rental practices, safety standards, and other aspects of property management. For example, the Renters’ Reform Bill has caused student landlords significant concern.
- Dependence on university demand: The success of student accommodation investments is closely tied to the demand from local universities. If enrollment numbers drop or universities build more on-campus housing, it could impact demand for off-campus accommodation.
- Regional variability: The performance of student accommodation investments can vary greatly by location. Some areas might have strong demand, while others might struggle to attract tenants.
Our verdict: should I invest in student property?
So, in response to the question of whether investing in student property is a good idea or not, the answer is that it depends. Before doing so, we recommend taking the following steps:
That said, it’s important to carefully think things through before committing to a buy-to-let property investment. We recommend following the steps below to help you make up your mind:
- Work out your investment goals: Define your investment objectives. Are you looking for regular rental income, long-term capital appreciation, or a combination of both? Student accommodation can offer attractive rental yields, but the potential for capital appreciation might vary depending on the location and market conditions.
- Consider your risk tolerance: Like any investment, student accommodation comes with risks, including market fluctuations, regulatory changes, and property management challenges. Assess whether you’re willing to accept these risks.
- Perform market research: Conduct market research to understand the demand for student accommodation in the specific location you’re considering. Look at enrollment trends, university expansion plans, and the overall student population.
- Analyse the location: Location is a key factor in real estate investment, and properties near universities, amenities, and good transportation links tend to perform well. Evaluate the potential for long-term demand in your chosen area by identifying whether there are desirable features like these.
- Think about an exit strategy: Plan for how you will exit the investment in the future. Selling student accommodation properties might have specific challenges, so think about your long-term strategy.
- Speak to a property investment specialist: It’s highly recommended to speak to a property investment specialist like Alesco before taking the plunge. Real estate experts have in-depth knowledge of such markets and can offer advice on aspects like the pros and cons of student property investment, where the best properties are and what this type of investment involves.
By taking into account the pros and cons of student property investment and the above considerations, you can work out whether this is the right strategy for you or not.
How can I invest in student accommodation?
Doing so involves numerous steps, including finding the right location, identifying the perfect property or properties, performing due diligence on them and actually buying the accommodation. All of this can be a minefield for even the most experienced of investors, which is why Alesco has been offering student property investment advice for over 20 years to help new and old property owners alike make great choices.
Using our wealth of experience, array of market insights, and expert property investment knowledge, Alesco can help you build a profitable student property portfolio in almost no time. Regardless of whether you’re seeking consistently high rental yields or strong capital growth, we can help you identify the perfect property investment opportunities from our exclusive portfolio. This is in addition to assisting you with aspects like performing due diligence and actually purchasing a property.
Contact us to find out more or to make an enquiry.
Written by: Ben Whitaker
Experienced professional working in the real estate investments sector. Assisting and advising clients on the acquisition of property across a range of asset classes, with view to achieving robust return on investment.