Investing in student accommodation has become an increasingly popular option for investors seeking a stable and potentially high-yielding asset class.
As the global student population continues to grow, the demand for purpose-built student accommodation (PBSA) is also rising.
In this article, we will outline the advantages and disadvantages of investing in student accommodation – for a more in-depth consideration it may be worth consulting this guide to student property investment from RWinvest.
Strong Demand
One of the most significant advantages of investing in student accommodation is the strong demand. With the number of international students increasing every year, universities are struggling to keep up with the demand for accommodation.
According to a recent report by Savills, there is a shortage of around 550,000 beds across Europe. This presents an opportunity for investors to provide quality student accommodation to meet this demand.
High Yield Potential
Student accommodation has a high potential for yields. According to Knight Frank, the average net yield for PBSA in the UK was 5.9% in 2019, compared to 4.2% for residential property.
This is due to the high demand and the fact that rents tend to be higher for purpose-built student accommodation than traditional residential properties.
Longer Lease Terms
Lease terms for student accommodation tend to be longer than those for traditional residential properties. This is because students typically sign up for accommodation for the entire academic year, whereas residential tenants tend to sign up for shorter periods.
Longer lease terms provide more stability and predictability for investors, as they know they will have a steady stream of rental income for the duration of the lease.
Less Tenant Turnover
Student tenants tend to stay in their accommodation for the entire academic year, which means there is less tenant turnover compared to traditional residential properties.
This reduces the costs associated with finding new tenants, such as advertising and screening potential tenants.
Purpose-Built Accommodation
Purpose-built student accommodation is designed specifically for students, with features such as communal areas, study rooms, and social spaces.
This provides a higher standard of living for students, which can lead to higher occupancy rates and rental income.
Diversification
Investing in student accommodation can provide diversification for investors who have traditionally invested in residential or commercial properties.
It is a separate asset class with its own unique characteristics, which can provide a hedge against any downturns in other property markets.
Attractive Investment for Institutional Investors
The strong demand and high yields of student accommodation have attracted institutional investors such as pension funds and sovereign wealth funds.
This provides validation for the asset class and can help to attract more investment in the sector.
What are the disadvantages?
However, like any investment, there are always risks involved. It is important to explore some of the disadvantages of investing in student accommodation so you can make the most informed decision possible.
Seasonal Demand
The demand for student accommodation is seasonal and is largely dependent on the academic calendar.
During the summer months, the demand for student accommodation is typically low as most students return home.
This means that the landlord may have to find alternative tenants during this period or face a loss of income.
High Maintenance Costs
Student accommodation often comes with high maintenance costs. This is because students can be careless, and damages to the property are common.
This can result in frequent repairs and maintenance, which can be expensive.
High Turnover Rates
Student accommodation has a high turnover rate as students typically move out after a year or two.
This means that landlords have to find new tenants regularly, which can be time-consuming and costly.
Dependence on Universities
The demand for student accommodation is largely dependent on the number of students attending the local universities.
If the university experiences a decline in enrollment, this can result in a decrease in demand for student accommodation.
Student Behaviour
Students are notorious for their wild behaviour, which can be a nightmare for landlords.
Noise complaints, damage to property, and antisocial behaviour are common problems faced by landlords renting to students.
This can lead to a negative reputation for the landlord and impact future rental opportunities.
High Competition
The student accommodation market is highly competitive, with many investors looking to cash in on the demand.
This can result in oversupply and saturation of the market, which can impact the landlord’s income and make it difficult to find tenants.
Where Should I Invest?
Some UK cities have a higher demand for student accommodation than others, making them more attractive for investment. Some of the best UK cities to invest in student accommodation include:
Manchester
Manchester is one of the top cities for student accommodation investment in the UK. The city has a large student population, with over 100,000 students across four universities.
The demand for high-quality student accommodation is high, and there is a shortage of supply. Manchester has also seen significant regeneration in recent years, making it an attractive location for investors.
Edinburgh
Edinburgh is a popular destination for students, with several prestigious universities, including the University of Edinburgh.
The city has a large international student population, which creates a strong demand for student accommodation.
There is also a shortage of purpose-built student accommodation in the city, making it an attractive location for investors.
Birmingham
Birmingham is another top UK city for student accommodation investment. The city has a large student population, with five universities and over 70,000 students.
The demand for high-quality student accommodation is high, and there is a shortage of supply. The city is also undergoing significant regeneration, making it an attractive location for investors.
Newcastle
Newcastle is a popular destination for students, with two universities and over 50,000 students.
The city has a high demand for student accommodation, and there is a shortage of supply. The city has also seen significant regeneration in recent years, making it an attractive location for investors.
Nottingham
Nottingham is another top UK city for student accommodation investment. The city has two universities and over 60,000 students.
The demand for high-quality student accommodation is high, and there is a shortage of supply. The city is also undergoing significant regeneration, making it an attractive location for investors.
Conclusion
In conclusion, investing in student accommodation may seem like a promising opportunity, but it comes with its own set of risks and challenges.
Landlords need to carefully consider the advantages and disadvantages outlined above before investing in student accommodation.
It is essential to have a clear understanding of the local market, demand, and potential risks to make an informed decision.
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