The report by Paragon Bank, found that typically towns or cities with a single university with under 25,000 students offered the best rental yields, and therefore the best investment opportunity for potential landlords.
Swansea University, which has just over 20,000 students, had the highest rental yield of 9.56 per cent, which was followed by Hull with 8.68 per cent and Plymouth with a rental yield of 8.41 per cent.
The report noted that around 14 of the towns and cities in the top 20 rental yields only had one university.
One possible reason for this, according to Paragon Bank’s managing director Richard Rowntree (pictured), could be the lower proportion of purpose-built student accommodation.
Rowntree said this had “become more commonplace in major cities, whilst major cities also offer a wider array of property that students can rent, such as city centre apartments or build-to-rent schemes.”
He added: “Smaller locations will often offer more traditional type student accommodation, such as houses in multiple occupation, whilst property values are generally cheaper in these locations, which can help generate better returns.”
Student demand
The report said despite disruption from the pandemic on further education, landlords were seeing an increase in tenant demand.
According to Paragon, a quarter of landlords surveyed noted a rise in student demand since the start of the pandemic, while over half saw no change. Only 20 per cent of those surveyed said demand had decreased.
The report added that the trajectory of student numbers was positive, suggesting demand for properties would continue to grow. It said there tended to be a predictability of seasonal student demand.
Universities also tended to be large local employers so landlords operating in the area could pivot to provide accommodation for young professionals and families with children who work for the university, the report stated.
Going forward, demand is expected to remain strong, with a third of landlords with student accommodation saying they were thinking of purchasing a student let property in the next year, and this rising to half of landlords with 11 or more properties.
Around eight in ten landlords added that they were unlikely to sell a student let property in the next year.
Currently, according to figures from the BVA BDRC, only 13 per cent of landlords let to students and is the tenth most popular tenant type out of the 14 categories surveyed. The most popular were families with children, young couples and then young singles.
Pros and cons of the student let market
The report said the biggest appeal for student lets cited by landlords was rental yields with 79 per cent of respondents citing this, and this figure rose to 83 per cent among landlords who were primarily active in student towns.
Other factors included parents or guardians being reliable rent guarantors, with 64 per cent saying it was a motivator and 67 per cent active student landlords saying the same.
Reliable demand was also mentioned with 63 per cent of landlords and 67 per cent of active student landlords pointing to it as a positive.
The most common concern about letting to students was competition with built to rent of purpose-built student accommodation, with over a third of landlords and four in 10 active student landlords saying it was a concern.
Property damage was the second most common concern, with under a third of landlords saying it was an issue. This falls to 22 per cent amongst active student landlords.
Rental voids could also be a concern, with BVA BDRC figures cited in the report showing the proportion of student landlords experiencing rental voids grew from around 41 per cent in the third quarter of 2019, to 62 per cent in the third quarter of 2020.
This was above non-student landlords, which stayed stable at just over a third.
