The Guide to Investing in Purpose Built Student Accommodation
Last updated 17th March 2021 • Lois Arcari • JaeVee
Student accommodation has quickly gained a reputation as the property bubble that just won't burst.
Housesimple found that between 2015-2018 a parent who bought a property to rent to students could have gained enough profit to have paid off their own child's tuition fees!
So how can you make the most of this opportunity?
Read our guide for investing in student property to find out more.
- Why invest in student accommodation?
- Why international student expect more
- Where are the best places to invest in student accommodation?
- PBSA (purpose-built student accommodation) vs BTL (buy-to-let)
- The condition of affordability
- How to add value
- Words of warning
- Making a difference to retain students for multiple terms
Why is student accommodation such a good investment?
Student accommodation in the UK is currently valued at £53bn a year, with a 3% growth predicted annually and it's set to see increasing demand.
It's seen as a 'Brexit proof' investment, as student numbers are all but guaranteed to rise year on year for at least the next decade, from both home and international students.
Even EU student numbers are predicted to be safe, as the government has been pressured to protect student immigration.
Taking on multiple tenants generates a higher rental yield than other properties.
Students also make particularly low risk tenants, as you don't need to rely on them taking in a monthly income, and are likely to be financially backed up by their family.
International student opportunities
International students often have higher expectations than home students, as they have a lot more to lose.
They want an exceptional quality of accommodation waiting for them once they arrive in their new country, expecting a hassle free transition.
They also prove much more loyal to their accommodation than home students - 42% say that it's very important that they have the option to stay in the same accommodation for longer than a year, whereas home students are likely to shop around for better rent amounts closer to the university and jobs.
Another factor that makes international students a good market to attract is the fact that as many as 1 in 6 of them don't pay their own rent and are instead likely to be funded by their parents or wider family.
This means that they'll have a different idea of what value for money means than your typical home student.
For example, they are less likely to want high class facilities e.g. fast WiFi, gyms or parking, and are usually more concerned with the overall quality of the accommodation and availability of well equipped study spaces.
They are also less likely to want social spaces and are happier to live in private studios or solo flats than home students are.
Best places to invest in student accommodation
With thousands of UK and international students looking harder than ever for their perfect student homes, we’ll show you our top 10 student housing hotspots which have proven themselves as great for property investments:
Quirky, arty Brighton comes up tops in our guide to the best places to invest, as a top player which doesn’t look to face the oversaturation that other cities have had to contend with any time soon.
With world leading research and high levels of student satisfaction in the University of Sussex, and good graduate prospects and research quality from the University of Brighton, thousands of students are set to make their home there.
And it’s a great investment for you - student rents here usually generate between 6-8% gross yields, with many investors using student property to pay into their pension pot.
With the success of PBSA’s like Abacus House and Scape Brighton spurring on new investors, and also generating opportunities with buy to lets for students on a budget, Brighton offers incredible investment opportunities.
Offering a top 10 university which is also one of the most valued universities by top employers, it also presents investors with an attractive picture.
It’s estimated that the city will need an extra 6,400 student beds by 2028, which gives a great incentive to act as early as possible to reap the rewards.
But Bristol already has huge demand with only 7,000 out of the 51,000 students at Bristol staying at university supplied accommodation - not even counting numbers at neighbouring university, UWE!
It might be the biggest and not the best, but it’s hardly the struggling market that some exaggerate it to be.
It’s suggested that to counteract the measures from the New London Plan that could see limits on PBSA, investors should look into co-living and build to rent opportunities, plus think about making their homes available to more than just students - which could help you take advantage of the 62% of students who stay in London after graduating.
With around 99,000 students spread across four universities (Manchester University, Manchester Metropolitan & University of Manchester Institute of Science and Technology) and Salford University, demand isn’t going anywhere.
Glasgow’s market for luxury PBSA is positively booming.
The city offers a diverse array of student developments, even including one where students can slide into their lectures!
Over a thousand new bed spaces were built there last year, but demand is only on the increase, and saw around £100m in transactions in 2017.
This little gem of a city is packed with opportunity, hosting around 19,000 students from around the world in the University of East Anglia (UEA) or NUA (Norwich University of the Arts) and requiring an extra 10,000 bed spaces of PBSA.
There are currently a lot of developments taking advantage of previously empty office spaces.
Existing accommodation is named amongst some of the best in the UK.
It’s probably not one of the first places that comes to mind, but this unassuming city is making its mark as an attractive up and comer. 2019 has been a great year for student property developments, with a 440 bed PBSA off Aumbery Gap and a refurb of the old city centre jobcentre both in planning.
It’s an especially good opportunity if you already have property in the area, as you can expect to make about 36% more off rent from student tenants.
Subject to transformational regeneration projects over the last few years, Sheffield is an attractive city with a thriving luxury PBSA market, with lounge bars, cinema rooms and even nightclubs all on offer.
With Sheffield University’s impressive rankings for both academic excellence and a great student experience, and Sheffield Hallam’s impressive leap in rankings, students will just keep flocking into this student hub.
Cardiff has long been seen as Wales’ Golden Goose for property investors.
But Swansea is challenging the status quo with the reputation of it’s university growing year on year.
This is a great city where demand is outstripping supply, with 20,831 students in the city and only one new PBSA development planned this year.
With the existing market dominated by the tired old terraced houses that were common place for yesterday’s students, there’s now a huge gap for the greater quality and amenities that PBSA’s provide.
Liverpool is only getting better for the student accommodation market.
A great sign is that developments never stay static for long, with the previously halted Paramount Student halls having recently been bought out by a new owner.
As Liverpool is undergoing extensive regeneration plans across the whole city, it’s certainly worth looking at how the proposals and recent developments progress.
Of particular interest is the ‘Fabric District’ which is being earmarked as a creative hub to attract more student accommodation.
Liverpool also has one of the best postcodes for buy to let rental yields, with the L7 postcode (close to both the University of Liverpool and The Royal Liverpool University Hospital) currently generating a potential yield of 9.3%.
Top tips about where to look within the top cities for student property investments
While city centre developments often do well, many students prefer to live closer to their university and will pay good money for the convenience of being able to run to that 9am lecture they're late for rather than take a bus.
If you're looking at investing in a buy to let for students, take note of properties within walking or biking distance to the university, that have good access to public transport and are close to the city centre.
However, this does depend on the university - if it's multi campus, anywhere in the city could have equally good potential.
You should also pay attention to things like league table and student satisfaction rankings, and the number of applications that the university receives each year.
Students are increasingly seeking the best value for money and flooding more competitive, high quality courses with offers.
PBSA vs BTL
PBSA's (purpose-built student accommodation)
- PBSA properties seem to be flying off the market. According to yieldit, 18% of their student properties sold within a fortnight and 38% sold within one month, with the average sell time of only 46 days.
- There is great growth potential in PBSA accommodation. As of 2018, 30% of first year students live in PBSA, an increase of 8% from the last five years.
- These are very attractive to students as they offer high quality design and amenities in central locations. Even though the individual accommodation is self contained, they often offer structured events like bar and movie nights that allow them to be equally independent and sociable.
- It offers a great, low risk way to dip your toes into investing in luxury property. The luxury market for general residential properties is very small, but so many PBSA’s offer cinema rooms, gyms, and other high value features that it’s almost being seen as the standard features of this accommodation.
- PBSA's are very attractive to the international student market as they are usually offer inclusive living packages which take out the hassle of setting up life in another country with all inclusive bills, on-site security and even packages including kitchen equipment, bedding, etc. on offer. They are also seen as attractive to postgraduate students for the same reason.
- Locals, councils and students are often on the same page. Councils look favourably on PBSA’s as they replace the traditional terraced houses and free up the residential market for other renters. Students feel such developments are higher quality and more secure, and offer an easier transition from halls.
- Universities find it easier to collaborate with PBSA management than traditional residential landlords when it comes to event promotion, communication with students and safeguarding.
- According to a report by Knight Frank and UCAS, 76% of students are happy living in PBSA accommodation, and 69% of students living there would recommend it to new first years. This high level of satisfaction generates great word of mouth and means that the property practically markets itself.
- PBSA’s are extremely likely to be in prime city centre locations in the city than traditional student properties. Whilst some student BTL’s in crowded areas are situated on the outskirts of the city or bus routes, PBSA’s are almost always ideally located next to shops and public transport.
- It can be easier to retain tenants in PBSA. While students in traditional houses are often encouraged to shop around for a better deal, PBSA’s are more likely to offer incentives for their students to remain in the accommodation, with schemes such as reduced rent for the first month or a built in bus pass.
Or BTL (buy-to-let)
- PBSA's might be threatening to dominate the market, but renting normal buy to let properties to students is still a very viable option. The number 1 reason why students might still prefer to rent in normal buy to let properties is because of the money they can save.
- This means there's less hard work for you. While students are happy to pay a premium for quality services, they are also often equally as happy to sacrifice some amenities for a better deal on rent.
- Unlike in the student pods of PBSA where you lose a big chunk of income if your tenant is late on or stops paying rent, in these types of properties the students will simply pool together the difference in rent. If a tenant has to move out, students are encouraged by the university to find a replacement themselves, which takes out the stress for you.
- Universities often only list these type of properties in their own accommodation directories like Home Run, which are often the first place students look to find their second and third year houses. This means that student unions etc. effectively do all the work of advertising for you, while you get called up by a mass of interested parties.
- You'll need to check if your property needs to be registered as a HMO property. This could have big financial implications as you might need to secure planning permission to divide the house, and some local authorities require you to apply for a HMO license. There are also hefty fines for non compliance and extra maintenance checks required.
Although student properties can give you great profits on rental income, this market is increasingly in the hands of students.
And they'll let you know if the price isn't right.
Even with all the bells and whistles that students are increasingly being offered, value for money is still the number 1 basis for students choosing where they're going to move into.
And since new research has found that rents are still cheaper in the student sector than in a general residential one, with average rents still close to the 20-year average of £79 per week, you'll have plenty of competition on price.
If you do offer a premium price, you have to make sure it's justified - because with all the extra amenities on offer, any traditional properties that are heavily priced with no extra features will get a wide berth.
Gone are the days of buying a tired old house and expecting students to put up with it.
While some students will always want the cheapest option, and might move into anywhere if it's close enough to campus, they generally expect a better quality of accommodation than ever before.
With the competition offering luxury options that would have been unheard of even 10 years ago, you'll have to put in the work to stand out from the crowd.
Here's just some of the things that they will be looking and willing to pay a premium for:
- Larger rooms and beds
- En Suites
- Cleaners - Some students, especially international and religious students are looking for alcohol free, quiet or same sex homes. This is a very limited market at the moment, so you're likely to have great interest from students who haven't been able to find accommodation that suits these requirements.
- The ability to stay in the property for 2 years/the whole duration of their course
- Better service and communication from their landlords
- Customer care
- Good design - e.g good lighting, good quality furniture
With so much competition in the market, you really do have to produce something high quality - whether that's in terms of premium services, or an offer on rent that's just too good to pass over.
To give you an idea of what will succeed on the market, take a look at the features that the university's own halls offer in first year.
40% of all student accommodation is university owned, and students are more likely to move somewhere where their transition is made easier.
If you’re tight on budget, you can adapt your own property to what the most basic university accommodation offers.
If you look at their own premium accommodation, it's still less likely to have the really big expenses like gyms and cinemas.
Words of warning
- If you let to students through any type of building, your landlord insurance is likely to be higher due to the perception that there's a higher chance of wear and tear. You can check your quote here.
- Some cities are reaching market saturation, with the competition between PBSA, university accommodation and private rents all spoiling students for choice. Indeed, 2019 has seen an oversupply of student private rented properties for the first time ever.
- You can only sell student properties to students, meaning that you don't have the range of potential tenants like families or professionals. While this isn't likely to be much of an issue at the moment, it means that thousands of student landlords would be in trouble if student numbers were to fall for any reason. It also makes it harder to prepare an exit strategy. Maybe it would be better to create one of the few mixed properties that allow students to live with professionals. This is trickier for landlords to navigate and often frowned upon by universities and landlords alike, but keeping your options open does mean that your income is protected long term in case of any falls in the student population, and means you could also retain some of the 41% of tenants that want to stay in their university city after they've graduated.
- If you've bought into a PBSA, your only real exit strategy would be to sell to other cash rich investors, which all depends on the state of the market once you leave.
- It's a lot easier for student buy to lets, where the transition back to general residential properties would be minor. And financing student pods within a PBSA is often a tricky business. Mortgage lenders don’t like to lend on pods as they’re not seen as individual units, so you'll have to find funding elsewhere.
- Students typically take more management than your average renters. While you might have more rental income protections than with other tenants, they sometimes haven’t learned how to budget and manage their money and as such may not be as reliable with rent. Properties will usually need more TLC from buyer to buyer, with maintenance such as cleaning stains and replacing equipment the most likely things to be needed.
- Lastly, some universities are expanding their own accommodation portfolios and offering opportunities for their students to stay in halls throughout their education, instead of transitioning to the private rented sector or PBSA as was the case previously.
An opportunity to make a difference
Money aside, investing in the student market means that you can play your part in contributing to student wellbeing.
The student accommodation survey 2018/2019 found that having good housing was the number 1 factor for student's wellbeing.
Landlords, investors and developers all have the opportunity to create student living spaces that make a difference.
Creating bright, sociable spaces that your students are happy to live in will take some of the stress out of getting their degrees, and create a loyal customer base.
Student wellbeing is becoming a high priority for the industry.
Even if you just look at it from a pragmatic view, you can't rent out your properties to students who drop out or defer their course.
With as many as 1 in 10 students (even 1 in 4 in certain areas) dropping out of university, that's a huge chunk of your customer base that you could miss out on.
In June, the British Property Federation even released a specific guide to mental health and wellbeing for the student accommodation sector.
Luckily, student accommodation providers are uniquely equipped to help out.
Their student house is where the private, social and academic lives of a student all converge into one, and signs of stress can be shown here before they're noticed anywhere else.
That's why this sector is uniquely suited to helping out with early intervention.
Access to socials, wellbeing campaigns, resident assistant teams and even simple moves like small freebie 'care packages' for when students move in and around exam time can tackle key stressors.
According to University Business, far from the party addict stereotypes, 46% of UK university students have experienced loneliness during their course.
This is where the student property sector can come in, as 65% of students found that living in their accommodation helped them to make friends, and the ability to live with their friends is the 2nd biggest factor for student satisfaction with their accommodation.
So there you have it.
Student property isn't a guaranteed money maker, but as long as you offer value for money, whether high end or low prices, you'll be able to see great yields.
Do you have any other tips and tricks?
Do you think PBSA will dominate the market, or that normal student houses still take trumps?
Please note this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.