Postgraduate UK student accommodation to be 2014’s must-have investment?

Over the past few years, the return of the United Kingdom as a leading destination for real estate investment has been led by its student housing sector. Investors in this sector have benefited from the ongoing transition from traditional university-owned accommodation to the purpose-built accommodation which appeals to the country’s growing influx of international students who tend to be both more demanding in choosing accommodation and more affluent than UK students. Investors in this market have historically tended to focus on undergraduate buy-to-let accommodation, however a lucrative new market in high-quality postgraduate accommodation is just starting to materialise.

In 2011/12, postgraduates made up 33% of all higher education students, which was an increase in proportion of almost 10% on the previous year. There are currently 600,000 postgraduate students studying in the UK and 300,000of these are full-time. Proportionally, postgraduates are also far more likely to be from overseas than undergraduates. For example at Oxford, 63% of postgraduate students are from overseas compared to just 14% of undergraduates.

Both British and foreign postgraduates tend to be more independent and focused on study than undergraduates and are therefore less concerned about having vast common facilities(which reduce revenue for the investor) in their accommodation and more willing to pay a premium for additional private space. However due to its strong growth, this market is heavily undersupplied. To cater for the excess demand some developers are beginning to construct new postgraduate-only accommodation.Glasgow, Leicester, Southampton, Liverpool and York have all been identified by industry professionals as investment hotspots.

Generally, student accommodation is renowned for being a counter-cyclical investment product (more people go to university when the job market tightens) and nowhere is this more the case than in the postgraduate sector. For many graduates, job opportunities, or lack of, can be the key factor behind their decision on whether to study a postgraduate course. With more employers than ever now demanding postgraduate qualifications, demand for these courses has never been stronger.

Already, postgraduate student accommodation looks set to generate 50% greater yields than most normal buy-to-let properties. To take one leading destination as an example, at Leicester, where 25% of the 38,000 students studying at the city’s two universities are postgraduates, yields on postgraduate accommodation have now reached 8%.

We advise you to keep checking Which Investments for more updates on one of the coming year’s most exciting investment opportunities.

Don’t get suckered by student accommodation investments

There are so many irritating things about the UK property market that it is hard to know where to start with the complaining. But at the moment, the thing that is bothering me most is this idea that we have somehow escaped the kind of property crashes that other bubble markets have had.

We haven’t. House prices across the UK are still down about 20% in inflation-adjusted terms, and there has been a proper crash in the north and in Northern Ireland. But the government flatly refuses to allow house prices to fall to market clearing levels, so a huge number of people still believe that property is, and always will be, the safest investment there is.

If I had a tenner for every reader who asked me to write more often about how to make money out of property, I would no longer have to worry about the price of property. If you see what I mean.

So, to humour you all, I do keep an eye on various parts of the property market just in case, and I do listen to what the endless parade of property bulls have to say about the supposedly easy money that is there for the taking.

At the moment I am hearing a lot about the student property market. It’s a good story. The number of students in the UK is high and rising – up from 1.8 million in the 1990s to more like 2.3 million now.

There was some worry that the high level of fees would put UK students off, but so far they don’t seem to have noticed the change in the risk-reward relationship.

The UK is also a magnet for foreign students, partly due to its reputation for offering high standards and partly to the weak pound – something that makes an English education paid for in an Asian currency look pretty good value. At some of the UK’s top universities, up to 30% of students now come from abroad.

And all those well-heeled foreign folk need somewhere to live. Local authorities and universities would all prefer that they lived in purpose-built student accommodation (or PBSA as the industry likes to say), so that they don’t push up rents elsewhere.

The fact that 20% of the houses in multiple occupation in Brighton are lived in by students is one reason that rents in the city are rising at 7-8% year.

So it appears to make sense to invest in PBSA in top university towns, the ones the students will keep flocking to. You get a stake in the property market, a good income – students appear to have little sense of what is the right price for anything – and the chance of a capital gain too. And you get all that without the bother of having to manage a buy-to-let. So, why wouldn’t you?

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• Student Accommodation Investment (watchfulinvestor.wordpress.com)