As the UK’s student population continues to grow, so too are opportunities for investors
A quick look into the numbers and it’s clear to see why there’s so much interest; student housing offers a much greater return on average compared to traditional rental models. 2015 saw over £4 billion of investment into the UK student rental market from both UK and overseas investors, with plenty more growth expected in the near term.
During the economic downturn at the end of 2010, the student rental market was the only housing market left unaffected. Investors have therefore targeted the market for its resiliency; no matter how bad the economy gets, it seems students will still rent. According to a construction survey by Barbour ABI, the value of construction contracts awarded to build student housing in the first half of 2017 was more than the deals to build care homes, housing associations, local authority housing and sheltered housing together. Developers in the student rental market have been able to make profits of as much as £60,000 per room in the space of just two years, by building student accommodation blocks and selling them to investment funds.
The increase in the number of students heading into higher education has opened these opportunities for investors, and this trend is set to continue over the next decade. HESA reported that the number of full-time students in higher education grew by 540,000 between 1999 and 2012, an increase of 46%.
Demand from outside of Europe has continued to grow in the past 5 years, particularly from the Far East, which has seen average annual growth of 8.5% over the last six years. This has meant a dramatic rise in the demand for high quality and attractively located student accommodation.
Heriberto Cuanalo, chief executive of the upmarket student accommodation developer Collegiate AC, said foreign students made up the vast majority of his tenants in the company’s portfolio of more than 8,000 beds from Edinburgh to Exeter, but British people were now also moving in. The facilities they expect are in a different league from the traditional student rooms which are just big enough for a single bed, desk and wardrobe.
So where are investors in the U.K student rental market looking? Well it appears they are looking to the North, where yields are the highest in the UK and house prices are predicted to grow.
Liverpool is home to one of the largest student populations in the U.K with approximately 67,000 arriving each year, attracting a lot of investor attention. Whether studying at the University of Liverpool, Liverpool John Moores, Liverpool Hope or even Liverpool Institute for Performing Arts (LIPA), students, particularly those coming from overseas, are increasingly looking to more upscale options for their housing. Developments such as Devon House, the heart of the city’s student district, offer both residents and investors a promising prospect, regularly earning yields of around 8%.
Not too far from Liverpool, two of the UK’s largest universities are in Sheffield, another area offering significant returns on investment in the student rental market. With just 3/10 of the students here able to get university-provided accommodation, a great number of Sheffield students are reliant on private investors for accommodation. In 2017, student housing builds in Sheffield accounted for 11% of all new residential projects, second only to private homes. The international population in Sheffield makes up a large amount of the demand for accommodation, and the number of international students is expected to grow by 15 -20% over the next five years.
Manchester is another hotspot for investors in the student rental market. As the fastest growing city in the U.K, Manchester has seen recent annual capital growth in double digits, offering some of the highest rental yields which average twice those on offer in London. The record returns are driven by a young and growing population, a new economic success story and years of property undersupply. Currently, Manchester has a six-figure student population, with more overseas students coming to attend top universities such as The University of Manchester, while avoiding the high rent of London.
As an investor in the student housing market, it’s important to understand that sourcing and buying are just the first steps in making a good property investment. Depending on your strategy, managing a portfolio efficiently is arguably the most important and time-consuming part of being a property investor in the student housing market. Managing student properties comes with its own set of issues that are unique in the property rental sector. Term-time lodging dates and student lifestyles are not necessarily the easiest things to deal with as a landlord.
Luckily, there are a range of cloud-based property management platforms that can save you time and money. Keeping track of rent payments, changeover dates, outstanding property improvements and a heavy workload during peak times becomes a breeze when you have everything in one place and online. Different access levels for relevant information are available to student renters, contractors, your accountant and anyone else necessary to ensure the smooth running of your property rental business.
With new cloud-based technology, you can manage your investments from anywhere in the world, broadening the areas you may consider for investment, and opening the best opportunities from around the world.
Systems such as Arthur Online are entirely customisable. You can use them to remain in a central managerial position while not actually being on the ground, as things like tenant check-in/out can be handled by local agents. You can arrange viewings, sign documents and assign workorders to contractors all through dedicated apps.
This new generation of proptech is making the property sector more connected, ultimately helping investors manage and grow their portfolios efficiently and hassle free and giving them access to the most profitable opportunities.