Student housing: In a class of its own – Wyles

by: Matthew Wyles, executive director, Castle Trust Capital
  • 03/08/2017
  • 0
Student housing: In a class of its own – Wyles
Purpose-built student accommodation is attracting serious global investment and interest from UK landlords.

The ongoing furore around tuition fees may continue to occupy media column inches, but behind the headlines, the market for student accommodation is quietly gathering momentum.

It is attracting billions of pounds of investment each year, achieving rental yields that outpace residential letting and proving an attractive alternative to standard buy to let. The purpose-built student accommodation (PBSA) sector in particular is benefitting from a surge in large-scale investment. And this is piquing the interest of property investors who want diversification and greater margins in their portfolio, amid the tax and criteria squeezes of recent years.

Student expectations for accommodation have moved on from dilapidated shared digs to modern ensuite apartments, complete with Wi-Fi, storage and good security. Today’s student population is increasingly international, demands quality, purpose-built student accommodation, and will pay a premium for it.

A global asset class
The UK student housing market has ‘evolved into a global investment market’ of its own, according to Savills Research, with investment volumes expected to reach £5.3bn in 2017, up 17% on last year.

A quarter of this sum goes into development, as the appetite to invest in purpose-built student accommodation (partly fuelled by the fall in Sterling) currently outweighs existing stock.

The overall supply and demand imbalance in PBSA has boosted rents, which are up by 2.55% on average this year, according to Knight Frank. Cardiff tops the UK table with annual rental growth of 5.8%.

PBSA is also high yielding, typically delivering investors 4.6% compared to 3.3% in the standard buy to let market, according to Savills. Some cities – including Leeds – have even stronger potential, due to a combination of limited supply and growing student populations.

And while tuition fees may deter some home-grown students from entering higher education, a quarter of the UK’s student population is now from overseas. Applications from Chinese students alone have doubled over the last 10 years, says Savills, and the UK’s weak currency position is further boosting demand from foreign students.
Revision notes

The lending landscape for traditional HMO-style student accommodation is likely to be familiar territory for many brokers, but financing an investment in PBSA – whether it is raising funding for development or refinancing an existing development loan – is more niche and may be unfamiliar.

Don’t be put off – look to work in partnership with a specialist lender with proven expertise in PBSA, such as Castle Trust, which has a track record of providing bespoke funding solutions.

Choosing the right partner will equip you with the tools you need to grow your client-base in this niche but potentially lucrative sector.

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