This article analyses how key characteristics of university locations determine the success of a student property investment. It provides investors with information regarding what to look out for when choosing where to invest.
- Demand fuelled by local government policy
- Uneven national demand for student property
- Profitability of overlooked regional cities
- Regional comparison of supply gaps
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With their on-the-doorstep peer community and comprehensive facilities, modern Purpose Built Student Accommodation (PBSA) is the leading accommodation choice among students today.
This high demand is reflected in the growth of the sector in recent years. With three consecutive record-breaking years, it is now a £2 billion+ industry. As such, it has moved from being considered an alternative investment form into the top-performing asset in the UK – one that has recently been validated as a world-class asset form by the Wall Street Journal.
Demand fuelled By local government policy
Such student accommodation is also popular with local councils, who have made it central to planning policy in the face of a critical housing shortage across the UK.
At present, there are 1.8 million people waiting for new houses in the UK. With the recent budget overlooking the necessity to stimulate an underactive housing construction sector, predictions are that there will be a shortfall of more than a million residential homes by 2022.
Given this, it is easy to understand why councils want to limit the number of residential student house conversions. This is good news for the student property market and with investment in the first quarter of 2015 already overtaking the total for all of 2014, this will be another record breaking year for the sector.
Uneven national demand for student property
Investors shouldn’t, however, simply assume the success of any investment within the student sector. They have been mushrooming across the county in recent years and their ability to return high yields is partly based on the number of developments that compete for tenancy among the local student population.
As such, demand will not remain uniform across the country. The student property sector is dominated by foreign investors who are attracted to the stability and transparency of the market, particularly when compared to the more volatile stock market. Without intimate knowledge of the country, these investors have largely focused their attention on globally recognised destinations like London, Manchester and Liverpool.
Like London, property prices are inflated in Manchester and Liverpool, while the local student property markets are also highly saturated. In Manchester, the 70,085 students at the University of Manchester and Manchester Metropolitan are provided for by 21,243 designated student rooms – 3.3 students per bed.
Along the same lines, the 49,629 students at Liverpool’s three universities will have approximately 23,570 rooms at their disposal by 2017, and property experts believe that this figure could rise to as much as 35,000 by 2020. With long-term factors crucial to a property investment’s returns, 1.4 students per room is unappealing.
Profitability of overlooked regional cities
Given this, investors are increasingly turning their attention towards better assets in less well-known locations.
A good example is Preston – a city in the North West that experienced the highest level of overseas investment in the first 3 quarters of 2013 anywhere outside London. With 32,000 students and only 5,540 designated beds, Preston’s PBSA have an unprecedented level of demand.
In a similar vein, Leicester has 7,767 purpose built student rooms at varying stages of completion and a 50,000 strong local student population. Taken together, Preston and Leicester’s student property market capacity translates to 5.9 and 6.4 students per room, respectively.
Regional comparison of student accommodation supply gaps
A well understood investment principle is that fame reduces the returns of an investment. Indeed, once it has arrived in the national spotlight, an investment’s time is up. Manchester and Liverpool have been winning acclaim as student property investment hotspots and, as such, the time to enter these markets has surely passed.
Considering that the profitability of property lies in long-term investments, the characteristics of locations like Preston and Leicester mean that they are better able to offer sustained tenancy demand throughout the full investment cycle.