One of the most attractive characteristics of the UK property market for many investors is the potential it offers to gain a second income.
Given the size and diversity of the sector, there are many opportunities to acquire assets that generate passive income through regular rental returns.
Some of the most promising prospects can be found in the purpose-built student accommodation sector, which has shown strong performance in recent years and looks set to continue this trend in the near future.
One of the most attractive qualities of student accommodation as a target for income investment is the strength of demand for well-equipped, conveniently located living space in the sector.
This steady demand provides welcome reassurance to investors that they will receive regular rental yields and a relatively low risk of void periods.
According to recent research by real estate services firm JLL, the number of full-time students in the UK is due to increase by 500,000 over the next ten years.
Some of this growth will come from overseas, with the report noting that international applicants continue to be drawn to the UK, not only by its world-renowned universities but also the country’s “language, cost, political and cultural benefits”.
UCAS figures for January 2019 revealed that UK university applications from non-EU foreign countries increased by 9% year-on-year, while the number of applicants from within the EU rose by 1%.
It’s clear that, despite the recent uncertainty caused by Brexit, students from all over the world are still keen to pursue their studies at British institutions.
Another significant current trend in the UK property market is the upending of the traditional north-south power divide. In the latest Hometrack UK Cities House Price Index, Manchester, Liverpool, Leeds and Cardiff all featured in the top ten – based on year-on-year price growth – while London, Portsmouth and Oxford were in the bottom five.
This increasing diversity in destination choice for investors is evident in student property as well as the mainstream housing sector.
Regional cities like Liverpool and Cardiff, for example, are on course to grow in prominence as student accommodation hotspots in the coming years, owing to factors such as popular local universities and strong cultural identities that appeal to students.
Expansion in regional economies could also help to ensure that destinations outside London and southern England become increasingly appealing to students and, consequently, investors.
Robust income stream
Anyone looking at UK student accommodation as a target for income investment can take reassurance from recent research highlighting the sector’s ability to deliver steady returns, even during times of economic difficulty.
In a report exploring the segment’s evolution from “an alternative asset class into a mainstream investment”, Savills noted that many investors are drawn to student housing by the promise of a “counter-cyclical income stream”.
“In economic downturns, demand for student housing tends to increase as students prolong their studies while they wait for the job market to improve, while those out of work return to university to upskill,” the authors wrote.
The underlying strength of the student accommodation market, combined with encouraging prospects for ongoing growth in locations across the UK, will surely attract more interest from investors looking for ways to boost their regular income in 2020.