The UK’s student property market has a strong reputation both domestically and in the international sphere. Student accommodation has been highlighted by Knight Frank as the top-performing asset class in the UK, with average yields well ahead of those in the traditional buy-to-let sector, and has attracted over £6 billion of investment over the past three years.
However, it would be a mistake to think that this means you can just pick up a student property and watch the returns roll in. As with any asset class, you need to choose your purchase carefully in order for your investment will deliver as it should. So how do you go about investing successfully in this potentially profitable asset class?
Purpose-Built or HMO?
HMOs – family homes let to group of students on a per-room basis – offer something of an advantage in economies of scale. A single property can be let to a number of students, making it a comparatively affordable way to invest in accommodation for several students at a time.
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However, purpose-built accommodation offers a number of advantages. It offers higher living standards to students and often occupies desirable, central locations. This serves to attract the more discerning breed of student which is now far more common than stereotypes would have you believe. In fact, student preferences have increasingly shifted towards purpose-built accommodation recently. Furthermore, purpose-built pods offer a more affordable entry point for investors, as they allow you to invest in a single student unit where HMOs require the purchase of a complete, multi-roomed home. Despite being more affordable, purpose-built accommodation offers higher yields, sometimes by as much as 70%, making it ultimately the better choice in the current market.
Often, the best way to gauge the viability of a student property investment is to look at the university or universities in the area. If the property is located in a town or city with a high-ranking university, particularly part of the leading Russell Group, then demand is likely to be higher. Of course, in order to capture the demand the property must be well-located and provide easy access to the university’s campuses. This is because higher-ranking universities tend to be more popular and attract greater numbers of students, and this creates higher demand for accommodation.
Towns with multiple universities also tend to attract more students, for the simple reason that there are multiple institutions all independently taking people in. This also helps to create higher demand, particularly for properties that provide easy access to the campuses of more than one university.
There is currently high demand for this type of property thanks to rising student numbers, and this is set to go even further next year when caps on new university intakes are lifted. Nonetheless, students tend to be more discerning now than they have been in the past, and not all properties succeed even if they seem to have all the ingredients of success.
When buying purpose-built accommodation, it is important to look at the provider. If the development comes from an experienced developer and is being managed by a company with a track record of success in the student sphere, then you are significantly more likely to experience the sort of strong performance that has made the student market so popular.