Student landlords need to do their homework
Is student property a good investment? Sharon Dale investigates.
THE latest Student Housing Report from Savills reveals a shortage of purpose-built accommodation, with just one new bed created for every eight students last year.
The potential crisis is particularly acute in London, where the city’s universities can supply only 36 per cent of the bed spaces required to meet their accommodation needs.
Savills research estimates that the shortfall will be approaching 23,000 in London alone by 2014. Other university cities can supply an average of around 65 per cent of accommodation leaving 35 per cent of students to look for a home in private rented properties.
“We fear that if local authorities do not encourage sufficient purpose-built student accommodation to be built, we will see increased competition from students in the already hard-pressed private rented sector, which will lead to further rent rises,” says Yolande Barnes, head of residential research at Savills.
This supply and demand problem spells big opportunities for institutional investors and for smaller buy-to-let landlords.
The institutions could build to let or they could buy and refurbish existing university halls of residence.
According to Savills, there is a lot of ageing and dated stock attracting high repair and maintenance bills and cuts in Government funding could prompt universities to sell their halls to the private sector.
Selling off their bricks and mortar, says Marcus Roberts head of Savills Student Investment department, could prove positive for educational establishments.
“British universities can no longer rely on name and status to maintain high application levels from overseas students. Tuition fees for international students have now risen to £9,300 per annum for standard courses and £11,500 for laboratory-based courses. At this level, it is fundamental that UK universities seek ways of
Provided location is good the returns are better than the conventional buy-to-let market.
upgrading and maintaining high standards of residential and non-residential buildings to maintain their advantage over aspiring international institutions.”
He adds: “There is increasing investor interest at the institutional level in this sector. Yields are at a level to compete with commercial property and have been singularly stable through the recession which means that capital values have not fallen significantly. At the same time, rental growth has been strong so total returns and prospects for the future look attractive.
“Individual students may each be paying relatively small amounts of rent, but taken collectively, a single building will produce significant cash flows with minimal voids and virtually no risk of large scale defaults.
“ A large hall of residence is significantly lumpier than numerous, small, disjointed houses or flats and this appeals to an institution seeking a multimillion pound investment in a single transaction.”
The major university cities in Yorkshire are well-supplied with student accommodation but both purpose-built and shared houses can still represent a good investment, according to Andrew Wells, of property valuers and auctioneers Allsop.
“Leeds, Sheffield and Bradford have had a fantastic run over the last six years in providing new purpose-built accommodation for students. Combined with accommodation provided by the universities themselves, some 40 per cent of Leeds full-time undergraduates now have access to a purposebuilt student room.
“This compares with 36 per cent at Bradford and 28 per cent at Sheffield. This puts Leeds near the top of the league of UK student cities in terms of its ability to provide quality accommodation for its students,” says Andrew.
“You may not realise that if you have a pension with Prudential, Aviva or Aberdeen, that the higher education sector may now to be contributing, in part, to your pension pot.
“Last year Aviva paid £37m for the Broadcasting Place scheme in Leeds with the Leeds Metropolitan University as tenant, showing a sharp yield of 5.85 per cent. Wellcome Trust are partners with Quintain in the IQ student residences on Cross Chancellor Street, Leeds and two blocks in Sheffield. Prudential has recently bought a block in Bristol and is bidding for more.”
None of this has dampened rents. According to Andrew, they have risen by 13.5 per cent over the last two years in Leeds, 7.4 per cent in Sheffield and 4.1 per cent in Bradford.
While students like to stay in purpose-built block and halls of residence for their first year, many prefer to find a house to share thereafter.
Andrew says: “Returns of 8 to 11 per cent are still available and there is a consistent hard core of student tenants who elect to share a house. The rental differential between shared house and purpose-built block has widened to make a shared house relatively more affordable, though students are fussy about location.
“Fringe areas are slowest to let, or sometimes won’t now let at all. In Leeds, Hyde Park Corner is the centre of gravity while in Sheffield, Ecclesall Road is where most students want to be.
“Increased regulation of this sector and the requirement now for planning consent to be obtained before a dwelling house can be turned into a student house has unsettled some in the market and there are a good few landlords who have sold up.
“For those that remain, however, provided location is good, the returns are generally better than anything that can be obtained in the conventional buy-to-let market.”
But for those thinking of buying a student let, be warned that they are labour intensive and can be a challenge for the novice landlord.
There are more rules and regulations attached to these properties and students are discerning.
The smart, well-equipped purpose-built blocks have set high standards that private landlords are also expected to deliver.
PURPOSE BUILT: Student accommodation like Unite’s The Tannery in Leeds, above and below, has helped drive up standards.
HIGH-SPEC: Unite’s Sky Plaza student accommodation in Leeds.