Student Accommodation Investment – Experiences?

Hi Mike

I've not invested into this market as it has become popular since I decided the time had come to stop investing and to start living off the investments I've already made.

My advice would be to research demand and what students are prepared to pay and not to rely on the "assured returns" which are generally only for a few years anyway. That way, you will not be reliant on the value of the guarantee and are less likely to encounter a drop in income after the period of the "assured" return has expired.

The good news is that these buildings are generally being granted planning permission to solve demand issues and that student are becoming far more discerning.

These student developments are generally targeted at investors who are looking for a relatively hands off form of property investment in order to achieve a better income return return than from cash deposits.

The downside is that the "Student pod" investments are generally not financeable due to the restrictive planning covenants. Accordingly, for investors who utilise gearing-up strategies similar to myself they are far from ideal.
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Mike,
Yes I too get emails offering great student deals. I ignore them because I don't know the student market in that particular place and I do not trust a 'guarantee'. For me the guarantee would only be acceptable if paid up front because how can I be sure the company will exist in future? And of course if it were paid up front then it is effectively a discount on the sales price, so am I paying too much anyway? I don't take anything for granted. I need to understand all angles of a deal .....

Mike,

Niche commercial property (e.g. student accommodation or retirement homes) is becoming increasingly attractive investment all over the world.

The UK student property market is developed and in strong demand, thanks to the country’s history of academic excellence, world-renowned institutions as well as growing local and international demand for British university courses.

University studies in developed countries are attracting growing numbers of students, both from overseas and locally. The UK and Germany had 2.3 and 2.7 million students enrolled last year. The number of students in Germany grew by 36% since 2005 and student numbers in London are expected rise by 50% over the next ten years according to JLL.

The UK student property market attracted $6.5 billion in 2015, compared to only $3 billion in the US, which has far more students, according to a Savills report on worldwide investment trends. In the meantime, Germany’s student market only received €220 million investments in 2014.

A key indicator for potential demand in the student property segment is the number of foreign students, as they have to find rental accommodation where they study. Foreign nationals make up 17% of students in the UK and 11% in Germany, where 63% of all students rent flats or apartments in private student complexes, preferably near campus and of 30 sq m, according to Savills.

In the UK, student property is particularly popular with foreign investors from the US, Russia and the Middle East. American investments made up 80% of cross-border deals into this segment between September 2014 and 2015 accord to Savills. At the same time, LetterOne Treasury Services, a foundation led by Russian oligarch Mikhail Fridman, invested $770 million into the Pure Student Living student housing management company in 2015.

Investors choosing student accommodation are also better off than those buying standard rental property: prime initial yields on direct let student property are about 5% in both Germany and the UK according to Savills’s World Student Housing report 2015/16.

In 2015, yields in the UK ranged from 3.75–6.75% with the lowest in prime London: 3.75% based on a 25-year lease to a recognised university up to 4.75% for direct let. Despite lower annual revenue, these investments are the safest thanks to high demand and good student growth prospects. Prime regional properties brought in 4.50–6.00% with secondary regional locations earning between 5.00% and 6.75% due to enhanced risk linked to demand and future growth prospects for these more secluded destinations.

Cities in the north of the UK present excellent investment prospects as over two thirds of student rentals are not in purpose-built or university campus student accommodation according to the Knight Frank report on Student Accommodation 2014. Instead, the vast majority of students rent from the common residential housing stock.

The most promising UK cities for investing in student property:

Liverpool
Leeds
Manchester
Newcastle
Sheffield
(Source: Tranio.com)

When compared to other types of commercial property, student accommodation has a number of advantages:

-relatively low barriers to entry: investors can buy the whole building or one/several units
-lower building costs for student property compared to standard accommodation
-stable demand: this segment is less affected by economic crises

Nevertheless, there are some risks involved.

According to Marina Filitchkina, head of sales at Tranio international property broker, "student property is more difficult to sell than regular flats as it has its own market audience and is built near large education hubs. Small investors do not have the possibility of transforming these into standard accommodation if they expect a guaranteed yield and often require the services of a management company, which will also detract from revenue. Nevertheless, all the signs are pointing towards growing success and demand for British and German universities and student accommodation, which is why we recommend them to clients looking for relatively high and stable yields."

(Reproduced in part from Tranio.com. The original article can be found here https://tranio.com/united-kingdom,germany/analytics/high_yields_and_growing_demand_for_student_property_in_the_uk_and_germany/)

Do you own research and buy a nice house near a university, it will be a lot safer. Ask of the people who send out these details, what's in it for them?