Guide to Property Investment in Student Accommodation

Understand the challenges, considerations, and best practices for high returns in the lucrative world of student accommodation investment.

In recent years, there has been a marked shift in the landscape of property investment, particularly in the realm of student accommodation. Once dominated by traditional housing options, the sector is now witnessing a significant move towards Purpose Built Student Accommodation (PBSA). This evolution reflects the changing preferences and needs of a growing student population. Investors, both individual and institutional and new, are increasingly recognising the potential of student accommodation as a viable and lucrative investment option. This guide delves into the nuances of this burgeoning market, exploring the reasons behind its rise in popularity, the challenges it presents, and the key factors to consider for successful investment. Whether you're looking to diversify your portfolio or step into the world of property investment, understanding the dynamics of student accommodation is essential in today's ever-evolving real estate landscape.

Summary

Investing in student accommodation offers high returns amid rising demand. Key factors include location, property type, and market trends. Challenges include legal aspects and market risks.

Why Invest in Student Accommodation?

Investing in student accommodation has become increasingly popular, thanks to the high demand driven by rising university enrolments. This surge in interest can be attributed to a number of compelling factors:

• High Demand: Universities across the UK are experiencing a steady increase in student numbers, leading to a heightened need for accommodation. This demand is consistent and shows no signs of abating, presenting a lucrative opportunity for investors.

• Preference for PBSAs: While traditional Houses of Multiple Occupancy (HMOs) have long been a staple in student housing, there's a noticeable shift towards Purpose Built Student Accommodation (PBSA). These modern facilities, often in regeneration areas, are tailored to students' needs, offering convenience and community that HMOs often lack.

• Advantages of Investment:

  • Higher Yields: Compared to traditional property investments, student accommodations often offer higher yield percentages, making them an attractive proposition for investors.

  • Hands-off Management: Many student properties are fully managed by dedicated companies, which means investors can enjoy a more hands-off approach. This particularly appeals to those seeking investments with minimal landlord responsibilities, a core aspect of Beech Holdings' philosophy​​.

Strong Market Growth: The student accommodation sector has shown robust growth, supported by positive reports from industry leaders like Savills and Knight Frank. This suggests a healthy market with potential for long-term investment success.

Challenges in Student Property Investment

While student property investment offers many advantages, it's crucial to be aware of the challenges involved. These challenges not only influence investment decisions but also impact the long-term success of the venture:

1. Legal and Financial Considerations:

• Licensing: Student properties, especially HMOs, require specific licensing, which varies by location and can affect operational feasibility.

• Market Risks: The student property market, like any investment, is subject to fluctuations. Economic factors, such as changes in university enrolment trends, can impact demand.

• Property Management: Effective management is key to maintaining high occupancy rates and property value. Companies like Beech Holdings offer comprehensive property management services, but investors must consider these costs​​.

2. Capital Growth Limitations:

• Resale Market Restrictions: Student accommodations, particularly PBSAs, often have a niche resale market, limiting potential buyers to mostly cash investors.

• Modest Year-on-Year Value Increase: Unlike traditional real estate, student properties may experience lower capital growth, impacting long-term investment returns.

3. Economic Factors:

• Brexit and the Economy: The UK's exit from the EU and broader economic trends can influence student numbers and, consequently, demand for accommodation.

These challenges highlight the importance of thorough market research and understanding the unique dynamics of the student property market. While there are risks, informed decision-making can lead to profitable outcomes in this sector.

Key Considerations When Investing in Student Property

Investing in student property requires a strategic approach, taking into account several key considerations:

1. Location and Market Research:

• Proximity to Universities: The value of student accommodation significantly depends on its closeness to educational institutions. Properties within walking distance or a short commute to universities are highly sought after.

• City Amenities: Access to city amenities like shops, restaurants, and entertainment venues is also crucial. These factors greatly influence students' living experiences and, consequently, the property's attractiveness.

2. Types of Student Accommodations:

• Houses of Multiple Occupancy (HMOs): Traditional HMOs, while offering higher rental income, come with their own set of challenges, including strict legislation and potentially higher maintenance costs.

• Purpose Built Student Accommodation (PBSA): These modern buy-to-let facilities cater specifically to students’ needs, providing amenities and community aspects that HMOs may lack. They are increasingly preferred for their convenience and inclusive environment.

3. Financial Considerations:

• Return on Investment: Assessing the potential ROI is vital. This includes understanding rental yields and comparing them against property prices and operational costs.

• Property Prices and Rental Yields: The balance between the purchase price and the expected rental income is a key factor. In areas like Manchester, where the rental market is strong, properties managed by firms like Beech Holdings can offer sustainable, high-yield returns to investors​​.

Best Practices for Student Accommodation Investment

When investing in student accommodation, certain best practices can significantly enhance the appeal and profitability of the property. These include:

1. Property Must-Haves:

• Wi-Fi: High-speed internet is a non-negotiable for today's students. It's essential for both study and leisure.

• Double Bed, Desk, and Chair: Comfort and functionality are key. A double bed, a sturdy desk, and a comfortable chair cater to the needs of students for rest and study.

2. Marketing Strategies:

• Word-of-Mouth: Positive experiences from current tenants can be a powerful tool. Encourage feedback and referrals.

• Modern, High-Quality Living Spaces: Student preferences have evolved. They now seek modern, well-equipped living spaces. Highlighting these aspects can make a property more attractive.

3. Insurance and Legal Requirements:

• Landlord Insurance: It's crucial to have comprehensive insurance to cover potential damages and liabilities.

• Compliance with Legal Requirements: Staying updated with legal requirements, such as safety regulations and licensing, is essential for smooth operations.

Emerging Trends and Future Outlook

The student accommodation market is evolving rapidly, with several key trends shaping its future:

1. Rise in International Students:

• The increasing number of international students in the UK significantly influences demand for student accommodation. Their needs often differ from domestic students, typically preferring high-quality, conveniently located housing options.

2. Sustainability and Environmental Considerations:

• There's a growing emphasis on eco-friendly and sustainable living spaces in student housing developments. Beech Holdings, for instance, focuses on luxury, eco-friendly apartments, often restoring Grade-II listed buildings with advanced, sustainable technologies​​.

• This trend resonates well with the environmentally conscious student demographic, adding appeal to these properties.

3. Technology in Accommodation Management:

• Technological advancements play a crucial role in enhancing both the management and appeal of student accommodations.

• From digital property management systems to smart home features, technology is being integrated to streamline operations and improve the living experience for students.

These trends indicate a dynamic future for student accommodation investment. The rise in international students, coupled with the increasing demand for sustainable living and the integration of technology, points towards a market that is adapting to the changing needs and preferences of its key demographic. Investors who stay abreast of these trends and incorporate them into their strategies are likely to find success in this evolving market.

In summary, investing in student accommodation offers a unique opportunity for high returns, especially in the context of increasing university enrolments and the shift towards Purpose Built Student Accommodation (PBSA). However, it requires thorough market research and a deep understanding of the sector's dynamics, including legal, financial, and management considerations. With the right approach, focusing on factors like location, property type, and emerging trends such as sustainability and technology, investors can capitalise on this growing market.

For those interested in exploring the lucrative world of student accommodation investment, now is the time to delve into this promising venture. Discover how you can be a part of this dynamic market by reaching out to experts in the field, such as Beech Holdings, who specialise in sustainable, high-yield real estate opportunities in the UK. Contact us today or read our free investor guides.