Students have been getting a raw deal as of late.
Rising tuition fees, reduced investment in the sector, mass demonstrations and planned teacher walkouts have all contributed towards various commentators and media outlets alike venting their frustration about what the future holds.
In spite of this, it would appear that higher education is still appealing to many school and college leavers. Provisional figures released in January this year suggest that a record number of students have applied to university, with applications rising by around 5.1 per cent compared to the same period of 2010.
Data supplied by Ucas, the universities and colleges admissions service, shows that 583,501 candidates are chasing a place this autumn. It said this was the highest number since it started collecting data in 1964.
With more students going to university and an estimated 2.4 million students in the UK there remains a large opportunity to make income from investing in high quality student accommodation located in various cities across the country.
Lack of Quality Stock
Knight Frank has reported, through their own independent research, that only 50 per cent of all students in the UK have access to high quality purpose-built student accommodation. The expansion in student numbers in recent years has led to a far greater demand for accommodation pushing up prices and, in turn, rental yields.
From an investors' point of view, this suggests that there are plenty of opportunities to take advantage of student property.
There are three main options when it comes to sourcing stock.
Private halls of residence are purpose built apartments with shared facilities such as kitchens and possibly bathrooms. These are usually managed on-site, providing a hassle free investment.
Converted residential houses form the next option. These tend to be more hands-on as an investment and will generally house numerous students. Finally, private flats or apartments in a residential block form the top-end of the market. Being single occupancy, these tend to attract higher rents, appealing more to post graduates and overseas students.
Rents are Rising
Rents in the student accommodation sector have climbed by five per cent per annum over the six years to 2008-09, with growth considerably stronger in most markets between the 2008-09 and 2009-10 academic years. This compares with an average for all commercial property of just 0.6 per cent per annum in the same period.
Knight Frank's 2010 Student Property report suggests that at least a further five per cent increase in student rents will be seen for the forthcoming academic year.
Occupation levels remain high for good quality, modern, purpose built accommodation in the right location, the firm added.
The majority of key university towns reported nearly 100 per cent occupancy for the last academic year, with private halls targeting affluent domestic students, overseas students and mature students, the latter two of which are growing in number.
"The underlying market fundamentals are positive, with supply restricted and strong demand underpinning rental growth. Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future," the Knight Frank report said.
"There is strong demand for high quality, income producing assets
and it is anticipated this will continue with increased appetite from investors for direct let stock."
There are a number of benefits to investing in student property
which set it apart from other asset classes. Typical rents for student properties are higher than comparable buy-to-let homes in the same city; as a result there is the potential to earn more over a shorter period than with traditional investments.
In addition, thanks to their very nature, homes tend to be tenanted for almost all of the year and you typically know seven months in advance that your property is tenanted for the next academic year due to pre-lettings.
Private halls can be considered a hassle-free investment as they are managed by on-site teams who will handle all bills and ground rents, meaning you only have two outgoings: mortgage and management fee.
Investors should be aware that, as with any investment, there are potential pitfalls and drawbacks. The cost of attending university is rising and while the impact of this cannot be gauged fully right now, it has potentially priced certain members of the population out of attending altogether.
However, for now, it appears that demand is up, risk is low and so too are the costs involved, making it potentially a very lucrative market for investors to take advantage of.
- Thursday 02 June 2011