Your complete guide to UK student accommodation investment

UK student accommodation investment has emerged as an extremely popular choice for property portfolio diversification. In this feature, Experience Invest looks at why PBSA is a good investment and look at how buyers can achieve the best ROI.

  • Last updated: Mar 2020

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What is a UK student accommodation investment?

Purpose-built student accommodation (PBSA) is one of the most exciting segments of the UK property market at the moment. Its promise of attractive rental yields, combined with the wide range of investment opportunities available in popular student towns and cities, is gaining a lot of attention from investors.

If a UK student accommodation investment is on your radar at the moment, you'll want to know as much about the sector as possible before committing to a decision.

How to generate an income froma UK student accommodation investment

PBSA: An introduction

As the name suggests, PBSA developments are designed and built specifically for student tenants. This type of property meets the needs of its target market by offering easy accessibility to university campuses, along with the amenities students need to get on with their studies and enjoy their time at university.
There are many reasons why the sector is such an attractive target for investors. Recent trends have shown that PBSA offers relatively low entry levels, higher-than-average rental yields and a reliable passive income stream.

This is largely down to the strength of demand for high-quality student housing, which needs to be met with a corresponding increase in supply.

Buy-to-let property investors want to have confidence that the asset they are acquiring will be consistently occupied, thereby generating returns. In the PBSA sector, this assurance is provided by the ever-growing size of the student population.
Buy-to-let property investors want to have confidence that the asset they are acquiring will be consistently occupied, thereby generating returns. In the PBSA sector, this assurance is provided by the ever-growing size of the student population.
Looking to the future, real estate services firm JLL has predicted that there will be an additional 500,000 full-time students in the UK by 2030, so investors can feel confident that demand for purpose-built housing will stay strong.

PBSA has been through an exciting transformation over the past decade or so, evolving from an alternative asset class into a mainstream investment. Increasing interest and recognition from investors, combined with steady growth in demand from the expanding student population, suggest the sector will continue to thrive in the coming years.

Answering your questions

It's a good idea to seek answers to any queries you have before committing to an investment. Here are some of the most common questions about UK student accommodation investment:
  • What's the difference between PBSA and HMO?
    PBSA is unique because it's built by private developers specifically for occupation by university and college students. It often comes in the form of properties housing self-contained studio apartments with private kitchens and bathrooms, but shared communal areas and living space.

    HMO stands for homes of multiple occupation, which can be any residential property that is occupied by at least three tenants who share toilet, bathroom or kitchen facilities. This is often the first alternative for students who are unable to secure purpose-built accommodation near their campus. There have been concerns raised about living standards and conditions in some student HMOs.
  • What is the current UK student population and will this increase?
    According to the latest figures from the Higher Education Statistics Agency, the total number of people in UK higher education in 2017-18 was 2,343,095, an increase of 1% from the previous year.

    The number of first-degree students (the most popular type of higher education) has been rising consistently for three years, increasing from 1,524,235 in 2014-15 to 1,621,725 in 2017-18.

    While it's impossible to say with absolute certainty if the student population will continue to grow in the future, UCAS data showing record application numbers in 2019 and JLL's strong forecast for the next decade (both cited in section 1) should give investors confidence.
  • What impact could Brexit have?
    Following the post-Brexit transition period up to December 31st 2020, during which the UK will continue to largely follow EU rules, the country is due to fully withdraw from the European Union at the end of 2020.

    While there is a withdrawal agreement in place, rules in areas like tuition fees for international students and long-term settlement in the UK are always subject to change. More in-depth guidance and updates are available from the UK Council for International Student Affairs and Study.eu.

    As far as investors are concerned, one of the key points to acknowledge with regards to Brexit is that it doesn't appear to have dented international interest in studying in the UK. Britain's intention to leave the EU has been clear since June 2016, but overseas applications for places at UK universities have continued to increase, as the previously cited UCAS data confirms.
  • How does the investment work?
    One of the most popular approaches to PBSA investment is to buy units within a fully supervised development, which are leased back to a management company on a rolling agreement. This allows the building to be let in its entirety as student accommodation.

    This 'managed turnkey' approach means you can hand the day-to-day running of the property over to a well-established specialist and take advantage of the yields available. Returns are typically delivered quarterly in arrears, but this depends on your contract.
  • How do I exit the investment?
    One of the benefits you get as a client of Experience Invest is access to yieldbase, our dedicated resales arm. This service allows you to advertise your property to a database of clients who are actively looking for completed and operational investment opportunities.

    Alternatively, you can sell your property through other agents or even gift it to relatives or friends.

The international picture

The global student property market is witnessing some exciting trends at the moment, and the UK is at the forefront of the growth and evolution taking place on the world stage.

For owners of bespoke student housing in the UK, international students represent an important source of demand. Growth in demand from overseas is an encouraging trend, because international applicants are often willing to pay a premium for benefits that will ease their transition to life in a new country, such as close proximity to their university and on-site reception staff.
Detailed figures from UCAS illustrate the key contribution international students are making to UK higher education. More than 81,000 students from outside the EU made applications to study in the UK last year, a year-on-year increase of 8%.

Applicant numbers from China jumped by 30%, which meant that, for the first time, there were more applicants from China than Northern Ireland.
Applicant numbers from China jumped by 30%, which meant that, for the first time, there were more applicants from China than Northern Ireland.
The government recently made it clear that it wants the UK to remain a destination of choice for international students in the coming years. As part of its International Education Strategy, the government announced a two-year, post-study work visa to help overseas students start their careers after graduating.

Is student accommodation a good investment? (Pros and cons)

There are some compelling advantages associated with PBSA investment in the UK, such as:
However, it's important to take a balanced approach to any investment, which means you should also consider the potential disadvantages of acquiring student property.

These might include:
  • Off-plan property investment risk, suchas late delivery
  • Cash-only investment
  • Uncertainty about relinquishing control ofthe property to a management company

Fortunately, there are often measures and safeguards in place to protect against these sorts of risks.

A well-managed development project, overseen by an experienced company with a proven track record, should have contingency plans in place for overruns or unpredictable factors like inclement weather that could delay the build. Good developers will also report back to clients to provide updates and assurances during construction.

Independent project monitoring services can also help to give you maximum confidence and insight into how the development is progressing.

As far as the management company is concerned, one of the best ways to protect against risk and maximise your chances of good returns is by going with a stable, long-standing firm that has been there and done it many times before. Looking into the management company's history and the results it has delivered in the past will give you a good indicator of future performance.

Inside a completed PBSA development

One of the realities of off-plan property investment is that you're committing to an asset that is still under construction, meaning you can't physically see or examine it yet.

If you're considering going down the off-plan route with a student housing investment, you might appreciate being able to see inside a completed PBSA development, to get an idea of the sort of properties and facilities on offer.
Opto Living, which manages a number of student developments in Luton and Newcastle, has produced videos offering tours of properties like Opto Village and Opto Student Newcastle.

These videos offer a useful insight into the sort of amenities and features on offer in modern student accommodation investment. High-end provisions can prove vital when it comes to attracting strong demand and ensuring that living space makes a contribution to student wellbeing.

The future of PBSA

It's true that UK property has been through an eventful few years - partly because of Brexit and all the questions it has raised - and there is still some lingering uncertainty about what the future could hold.

Crucially, though, the property market has demonstrated its resilience to these sorts of external pressures many times throughout history, so investors can feel confident that the underlying fundamentals of the sector will remain strong.
Crucially, though, the property market has demonstrated its resilience to these sorts of external pressures many times throughout history, so investors can feel confident that the underlying fundamentals of the sector will remain strong.
As far as PBSA is concerned, the hard data from experts like JLL and UCAS suggests there is sufficient demand from students - both within the UK and overseas - to fuel the market and generate healthy returns for property investors.

The market is also becoming increasingly diverse, with up-and-coming destinations like Cardiff and thriving student cities like Liverpool showing the UK property sector has plenty to offer beyond London and the south-east.

It's impossible to predict the future with complete certainty, but the growth of student property in recent years and the strong indicators of further success suggest this sector will climb to new heights in the 2020s and beyond.

If you are considering a UK student accommodation investment, contact the property experts at Experience Invest to discuss your requirements. Simply click the link to arrange a free one-on-one consultation.
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