The student housing shortage is only set to expand with data forecasting that by 2025 there will be a shortage of around 450,000 student beds. This is a massive 217% increase from last year’s figures which suggested a shortage of over 207,000 beds. We caught up with associate Lauren Allcoat who has recently seen an increase in the number of apartments on the market targeting students and young professionals in city centre locations, to find out her thoughts on the future of student accommodation and what this means for the investment market.
“Despite the current economic uncertainty faced by the UK economy, there is little doubt that the demand for purpose-built student accommodation is growing in city centres. With demand for affordable student lets outstripping supply and 46% of students renting from private landlords, the private sector has been under significant pressure to fill the shortfall in student accommodation with many student landlords looking at new ways of profiting from their student property investment portfolios in several locations.
“Applicant numbers for undergraduate courses in September 2022 reached a new record level with a record 450,000 taking up a place at university. The demand for student property has skyrocketed across the UK, as more students than ever return to campus after spending several years studying remotely. This demand is reaching unprecedented levels, with student housing developers reporting they had filled 90% of their accommodation spaces for the 2022/23 academic year by July 2022. This is a faster rate than during the pandemic, when it was only at 81% filled, and is even faster than pre-Covid, with only 89% of their spaces being filled by the same point that year. This is clear evidence that students are returning to universities around the country and that there is a higher demand for high-quality accommodation than ever.
“It is no wonder then that investors are switching their focus to student accommodation as there is potential for great gains to be made owing to this growing supply-demand imbalance. In turn, steep competition has resulted in rental rises of up to 20% in some towns, which will be largely appealing to investors as it means more money in their pockets amidst heightened pressure for an increase in purpose-built student accommodation. Student property is one of the most popular methods of buy-to-let property investment in the UK. Usually, it is more affordable than regular residential properties, and in large cities where there is high demand for this property type which means investors can rely on a consistent income for most of the year.
“Higher demand for student property also means rents can rise at a faster rate than expected. With more students needing similar properties, they will be more likely to pay a higher level of rent, which means more rental income for the investors. Student accommodation is a popular property type for buy-to-let investors thanks to the more affordable property prices, so the chance to raise rental costs means it is likely investors will have higher rental yields on their investment portfolios.
“With 46% of students choosing to rent from private landlords, buy-to-let student property has traditionally been seen as old, run-down houses of multiple occupancies, often just residential properties converted to house students. Recent regulation surrounding HMOs (House in Multiple Occupation) has also made it more difficult to convert a residential home into a student let which has further contributed to a slump in supply.
“Nowadays students prefer modern purpose-built student accommodation, which allows investors who purchase a property like this to charge higher rent each month due to the popularity of their properties. These kinds of student properties are often located near campuses or in major city centres, so there will be lots to do nearby for them to make the most of vibrant city life.
“Local authorities understandably prefer protecting houses for owner-occupiers, so the burden of tackling the student housing crisis will largely fall on delivering new purpose-built student accommodation. From an investor perspective, there’s an obvious opportunity to meet demand by providing a product at a price point that is attractive to domestic students, but this is not always easy in practice with the well-known challenges around the price of land and high construction costs essentially setting a minimum rental level. Some investors may also wish to capitalise on what has been labelled ‘turnaround’ projects where existing first-generation purpose-built student accommodation assets are refurbished and revamped to draw even greater returns.
“Added to this, students have become more savvy consumers, they are expecting more of their university experience. This generation is one where ownership isn’t a priority, but the experience is. Student accommodation choice is potentially a lifestyle choice, they want amenity spaces, shared experiences and to be plugged into a wider community of like-minded individuals. Access to outside space is increasingly important as well as a need for varied communal facilities. Student accommodation schemes look to incorporate areas for ‘hybrid’ learning and communal spaces for remote working.”
Our commercial property agency team has a wealth of experience in the sale, letting and acquisition of commercial property.
