Almost a year ago now we ran a post looking at the future for the student accommodation market in the UK in the face of the Covid pandemic. Now as a new academic year is about to start, and Covid has taken many twists and turns, it is maybe a good time to take a look at the student property market again.
As many investors, landlords and agents will know student property is a major part of the property market in student cities. Demand from students and the impact of student investors affects prices and rents in the wider property market too. So it is something even non-student landlords and homeowners can’t ignore.
So let’s take a look at the student accommodation market now and at the possible future prospects for it.
Going back to September 2020 (when it looked like Covid was over, but wasn’t) the future for the student accommodation market did not look at all rosy.
Most universities had adopted blended or online learning meaning that students did not necessarily need to be on campus anymore. As the term started some students found themselves confined to university accommodation. It certainly did not look like the kind of university experience most students had signed up for, especially while still being expected to pay full tuition fees.
In fact, it seemed likely that in future far fewer young people would be attracted to study at university. It seemed that they might just stay at home and study instead, or even not go to university at all. Both of these were things that could mean diminishing opportunities or even disaster for student property investors.
So what’s happened since?
A possible fall in interest in going to university does not seem to have materialised. In fact, student numbers are still looking positive.
The number of students accepting a place has outstripped last year’s record, with 435,000 students finding spots within a day of receiving their A level results, an increase of 5,000 on last year, according to data from the University and College Admissions Service (Ucas).
Interestingly, there has also been a 9% increase in acceptances for non-EU students from outside the UK. This source of students could bode well for student numbers and growth of the market in future.
Moving on, private investors can also get an idea of the health of the market based on what large, institutional investors are doing by way of their investment in purpose built student accommodation (or PBSA) schemes. Although PBSA provides competition for private investors what and where new PBSA is being planned tends to show how and where the market is performing.
Figures seem to suggest that large investors are very optimistic about the student accommodation market.
Research from Savills says that 2020 was a record breaking year for investment in UK purpose built student accommodation (PBSA). Investors spent £5.77 billion in the sector last year, a 5.7% increase on 2019.
The big numbers are of course not all that relevant to smaller student property landlords. What they will want to know is whether student accommodation can still make money. Does student accommodation offer good yields? Does it still offer a good return on your investment? After all, one of the main attractions of student property is that it should offer much better returns than ordinary lets. Some might suspect that Covid could have reduced demand, reduced rents and lowered yields.
Some new research seems to suggest that student property yields are still attractive. Recent research by Paragon Bank says that the mean rental yield for student accommodation at the end of 2020 was 6.6% compared to just 5.6% for the wider letting market.
Paragon say that the best student locations offer investors yields in the region of 8-10% too.
Repeating the question we asked in our 2020 post on student accommodation: What does this mean for investors and others in the student market? Should investors buy, sell or stick?
The numbers seem to suggest that demand for this type of property will remain good. Expert investors seem to be very optimistic about the market. Good yields are still available. (Although it ought to be remembered that record house prices rises in 2021 will not yet have fully filtered through to yield data.) Existing student property investors will probably find they have done quite well from recent property price rises.
So, investors who are looking to invest in property could very well find that a student property fits their needs in 2021 and beyond.
One important point however: Small investors ought to consider student investments (as with any other type of investment) on an individual basis. They should look at local demand, supply including what new PBSA developments are in the pipeline, and local rents and yields before making a decision. Not every university city/property market is the same.
The Paragon Bank research suggests that single university cities and smaller locations have the best potential for good yields. Preston, Chester, Swansea, Stoke, Plymouth, Lincoln and Hull were all in their top ten yielding locations. All have relatively low student numbers and a single university.
It seems, therefore, that the prospects for student property are brighter than when we looked at the subject a year ago. A report from Cushman and Wakefield concludes: “Overall, the future for the purpose-built student accommodation is bright as the UK’s position as an academic powerhouse is set to outlive any pandemic uncertainties. The sector itself is now worth around £60 billion and remains the go-to alternative asset of choice for investors.”