Steve Larkin, Director of Development Finance, LendInvest
Student housing is an important, and growing, market for investors. According to Knight Frank, the purpose-built student accommodation market is worth £46 billion, while new developments completed this year are forecast to total £4.7 billion, a new record.
There are a number of reasons why it is so attractive.
For starters, there is a clear, structural under-supply of student properties. Student numbers have doubled since 1992 according to the Office for National Statistics, with approximately one in every three people aged 18-24 in full-time education. But, as with residential properties, construction of new homes to cater for the UK’s significant student population has failed to keep pace with demand.
The size of that demand is another big attraction to investors, with little sign of the UK’s student population declining in any significant way in the coming years. Indeed, if Labour end up in office in the next few years, the promised abolition of tuition fees is only likely to boost demand for higher education.
Getting Student Accommodation Right
So what should investors and developers consider before moving into this area of the market?
Location, location, location
The fundamentals of investing in student accommodation are very much aligned with traditional buy-to-let, meaning location is absolutely crucial. We have lent against student accommodation projects in places like Edinburgh, Sheffield and Nottingham recently, areas with large student populations and often more than one university.
The quality and standing of the university will play a part – you will want to invest in an area that is likely to enjoy sustained demand from students over the long-term. As a result, areas near Russell Group universities are particularly popular.
Of course, setting up in a city with a large student population isn’t enough for a successful development. You’ll need to pinpoint an area with excellent transport links to the university campuses and the city itself. Within walking distance of both is ideal, but it’s worth doing some research about public transport options – most students won’t have the luxury of a car, for example.
Timing is everything
The student market is far more seasonal than any other area of the property market. Students tend to begin hunting for the next year’s accommodation from January up until the summer months, so it’s important that you have your development in place by then. If you don’t manage that, then you face the prospect of extended void periods, months of sitting on an asset that isn’t actually bringing in any money.
This makes getting a robust development plan absolutely vital; there needs to be contingency plans in place to deal with any unexpected delays, to ensure that the properties are ready for student viewings at the right time. A quality project manager may be worth their weight in gold when it comes to student accommodation projects.
What about the layout?
Different tenants look for different things from their ideal property, and that’s particularly true of students. So it’s important to take your time to get the layout of your development right.
Communal spaces are often a good idea; if tenants feel like they are part of a community, they are more likely to want to stay, which means less risk of void periods. Dedicated work spaces will also appeal, as will having more than one bathroom.
Exactly what sort of facilities you want to offer will depend on what sort of student you are looking to appeal to. Some student accommodation aimed at the higher end comes with concierge services, on-site gyms and even a cinema.
The materials you use need to be carefully considered too; these are long-term investments, so it’s important that the property is built with robust, high quality materials that are likely to have a longer shelf life.
It is a good idea to visit other student developments in your chosen location beforehand, to give you a feel of the sort of features already on offer and how to set yours apart.
Who will market the properties?
If you intend to hold on to the student properties and let them out yourself, then finding a quality letting agent is an important job. The letting agent will be your main partner in ensuring that your properties are seen by potential tenants and running checks on interested parties, while you may also opt for them to manage the whole let too.
Research will go a long way here – some investors like to visit different letting agents, posing as mature students to see exactly how different firms market different types of student accommodation.
Think about your exit
With all property investments, it’s crucial that you establish what your likely exit will be. That’s especially true when developing student accommodation, as the size of your development will dictate exactly who is likely to be interested.
If your development encompasses less than 50 units, then your options are rather more limited. You may need to sell them individually. For developments above 50 units, then you are more likely to attract the interest of pension funds and institutional investors.
