Jerald Solis, Business Development and Acquisitions Director of Experience Invest explains to our readers the benefits of buying purpose built student accommodation
Across the UK there are some 2.3 million people studying at university. The vast majority (76%) are undergraduates and, of course, many of these students relocate away from home to pursue further education.
It is perhaps unsurprising, therefore, that student property has established itself as a popular asset class among investors given the sheer demand for living options from this student population. But within the broader ‘student property’ sphere, there are several different types of real estate available.
On the one hand you have traditional buy-to-let (BTL) options – flats and houses that can be rented to students, typically on a one-year let. As with any BTL investment, the buyer benefits from both a rental income and the capital growth of the asset in the long-term.
Then there is purpose-built student accommodation, or PBSA, which are complete developments dedicated to student living. Usually PBSA refers to one or more blocks of flats that are complete with other facilities to service the student tenants, such as laundrettes and catering.
PBSA is fast becoming one of the more popular property investments among both domestic and international buyers. In fact, the cumulative value of investment in UK PBSA is estimated to have reached £4.5 billion in 2018, marking an increase of more than 10% from the previous 12 months.
So what is attracting investors to the PBSA market?
The PBSA market
According to Knight Frank, approximately 29,000 new purpose-built student bedrooms are going to be delivered across the UK by the start of the coming 2019/20 academic year – this represents a 25% increase on the previous year’s figures. And in total, it is estimated that the total value of the PBSA market will hit £50 billion in 2019.
In short, more and more PBSA developments are emerging across the UK. This is because of the demand from domestic and international students; there is currently a shortage of suitable places for students to live.
Furthermore, Brexit is unlikely to affect this market significantly. At present, of the 460,000 international students studying at UK universities, less than a third (140,000) come from the EU. Moreover, three in every ten first-year university students live in private PBSA, meaning that overall demand in this space is likely to remain consistently high regardless of Brexit.
The high demand from the student population along with the rise in PBSA is good news for investors; it means there are a greater number of developments for them to buy units within and a good chance of them filling the property. But an investor – whether UK-based or international – must be able to identify the right PBSA investment opportunity.
Key points to consider
Choosing the right city or town is of huge importance. After all, a student property investment is still a property investment, and location reigns supreme in the decision-making process.
Liverpool and Newcastle – where investors can currently find opportunities such as Aura Student Liverpool and Opto Student Newcastle – are what Knight Frank classes as mature markets, or “strategic cities containing dual or multiple well-regarded universities, and large numbers of students”.
Indeed, Newcastle’s two main higher education institutions – Newcastle University and Northumbria University – saw their respective student populations increase by 70% and 110% between 2000 and 2015. As such, PBSA in the area is likely to be filled quickly and deliver a good yield for investors.
But there are other important factors to consider beyond the location of a PBSA investment. A study by UCAS and Knight Frank examined the most important factors for students when evaluating a place to live. Location came out on top, cited by 79% of respondents, followed by the ability to live with others (76%), the number of bedrooms (73%) and the quality of the accommodation (67%).
Students now expect modern facilities such as mod cons and high-speed Wi-Fi. Meanwhile, additional facilities such as gyms, games rooms and even cinema screens can elevate a PBSA from merely a place to live to a more holistic student experience.
Getting ahead in a competitive space
The popularity of the PBSA market does, however, mean there are high levels of competition from other investors. Earlier this year, Experience Invest commissioned an independent survey of more than 500 UK-based property investors. Of those, almost a quarter (24%) said they were considering investment into student property in 2019 – a reflection of the strength of this segment of the real estate market at present.
One of the easiest ways to get ahead in this space is to look off-plan – to seek investment opportunities within PBSA developments that are still under construction. Not only will this enable an investor to purchase one or more units before those investors who wait to purchase the finished product, but also typically buying off-plan means an investor will acquire a unit at a discounted, below-market-value price.
For investors considering PBSA, it is important they undertake thorough due diligence to identify the right opportunity. Finding the right location, of course, remains key; yet so too is investing in a property that meets the expectations of today’s university student. Doing so will give the investor the best possible chance of achieving strong short-term rental yields and long-term capital growth.
Jerald Solis is the Business Development and Acquisitions Director at Experience Invest, a company that provides property investors in the UK and overseas access to exclusive investments across a variety of asset classes. He is also a Director at Opto Property Group; a construction firm committed to creating developments that have a long-term, positive impact.