Property investors looking for opportunities in the UK that offer strong potential for reliable short-term yields and long-term growth need look no further than purpose-built student accommodation (PBSA).
In recent years, this market has distinguished itself as one of the most exciting segments of the British property sector, with various factors – including steady student demand and a solid development pipeline – coming together to create an encouraging picture for investors.
Having previously looked at some of the key global trends in student property, here Experience Invest examines the current state of the market in the UK.
A leading global market
Recent growth in the UK PBSA sector has driven up its value to more than £51 billion, making it the second-largest market for this particular asset class outside of North America.
That’s according to the Global Student Property 2019 report from Knight Frank, which notes that the recent growth in this space has been fuelled by strong investor appetite on a global level.
North America has been one of the key sources of international investment in student accommodation in Britain, but it’s predicted that Asian capital will make an increasingly significant contribution to the market in the near future.
Investors are encouraged by various aspects of the student housing segment, including the well-established ‘safe haven’ reputation of the UK property market in general.
Another key factor is the steady and reliable demand for living space from students, which provides maximum reassurance to investors that their assets will generate satisfactory yields. A healthy portion of this demand comes from international students, who are often willing to pay higher-than-average rents to secure well-equipped, secure and conveniently located accommodation.
Overseas applications for UK university and college places for the 2019-20 academic year are up six per cent on the previous year. Non-British citizens now make up 16 per cent of full-time undergraduates and 19 per cent of higher education students overall.
Given that this recent growth in international interest in attending UK universities has come despite the current uncertainty surrounding Brexit, investors have every reason to feel confident this demand will continue in the years to come.
Buy-to-let investor interest
The recent positive trends in the UK PBSA sector appear to have piqued the interest of buy-to-let investors.
Despite some of the recent regulatory and financial challenges that have emerged in the buy-to-let market – such as the steady phasing out of mortgage interest tax relief – investors are showing greater demand for niche asset classes like student accommodation, retirement property and build-to-rent housing.
Combined, these three segments will be worth £880 billion at full maturity, almost four times their current value of £223 billion, recent research by Savills has shown.
PBSA – the most mature and liquid of the operational real estate markets, according to the firm – is currently worth £51.2 billion. The student population has grown by nearly ten per cent over the past five years, despite questions around Brexit and the competition from apprenticeships.
Looking to the future, with regards to international student interest in dedicated housing space in the UK, the report suggested that demand from countries such as the US, China and India could mitigate any potential reduction in EU applications in the wake of Brexit.
Discussing the bright prospects in PBSA, build-to-rent and retirement housing at the moment, Lawrence Bowles, research analyst at Savills, said: “Common to all these sectors is the recognition that investing in where people live has great potential for investors, particularly those seeking long-term income streams.
“The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore. Institutional interest will continue to grow as these asset classes mature and can increasingly demonstrate their track record.”
Looking ahead to what the future might hold is a common pastime for investors who want to feel confident they are committing to an asset class that has clear potential for growth and long-term profitability.
According to Knight Frank, one of the key trends in the coming years will be the redevelopment of older housing stock, creating a new generation of PBSA that will be “driven by quality, value for money and delivering student experience”.
The firm also forecast that affordability will “drive the agenda”. “The acquisition of schemes where the rent that students pay is perceived as affordable will become an important focus for investors,” the report added.
Tenants are expected to show the strongest demand for “accommodation that provides clear and obvious elements that add value”.
Another key theme explored in the Knight Frank research is the significance of living space as a component of the overall student experience, something that was highlighted by Karen Varty, director of recruitment and admissions at Manchester Metropolitan University.
“It is critical that institutions take a holistic view of the student experience, ensuring teaching facilities, course offerings and campus life supports the learning and wellbeing of students; with quality, availability, proximity and value for money vital from an accommodation perspective,” she said.
PBSA schemes that meet the needs and expectations of students and complement the overall experience of higher education are likely to attract the strongest demand from tenants and deliver the best results for investors.
For more information about current trends in this market and how to make the most of them, download the Experience Invest 2019 UK Student Accommodation Investment Guide.