More landlords are investing in student accommodation, which reached a record high of £5.1 billion in 2015. This was more than double the level of investment seen in the previous year.
Student digs have come a long way from the days of living in dingy bedsits or purpose-built accommodation blocks with shared bathrooms and kitchens. Students of today are more demanding and expect high standards of living. They will want an en-suite bathroom at the very least and some will expect a restaurant or gym on-site in addition to free Wi-Fi throughout the building.
Britain’s universities and other centres of learning also attract many overseas students who also expect decent accommodation. Universities have not been able to supply the entire student body with somewhere to live and most can only accommodate first years or a limited number of postgraduates. With more countries around the world becoming more affluent, the new middle-classes are keen to invest in their children’s education and will look to the best countries to provide it.
That is why investing in purpose-built student blocks has become attractive, particularly in cities such as London and Manchester.
Neil Armstrong, a partner at Knight Frank Student Housing Valuations, said that rental growth averaged at 3.65 per cent as student numbers grew, with the supply of such accommodation struggling to keep up with demand.
More institutions are investing in the area because it gives good returns. Across the retail, office and industrial markets, student accommodation yielded top capital returns (15.3 per cent) and total returns (21.5 per cent) last year.
However, there are problems in investing in pods particularly in determining their resale value. The pool of investors is smaller than that seen in other types of student accommodation such as houses of multiple occupancy (HMOs) or flats. Determining the market value can also prove problematic.
The rental yields also need to be carefully looked at because the yields today may not apply in five or 10 years’ time, particularly if newer accommodation blocks are built nearby. These pods tend to lean towards luxury living, offering the services of a boutique hotel so newer pods with more modern features may appeal to the next influx of students rather than a slightly older version.
The growth in the student population in the past 20 years has regenerated parts of many cities, with investors turning old buildings or reclaiming derelict sites in order to provide accommodation. This demand looks set to continue for some years to come.