What factors can help you target the next prime location for investment?
Navigating through the many opportunities brought to the student property market can be challenging, especially as the asset class has firmly established itself as a powerhouse for investment.
With a rising popularity, certain well-known locations are now running the risk of oversupply, leading to the restricted potential for continued rental growth, whilst many other places have not received the attention and supply they desperately need to keep up with growing student demand.
Though adapting to the changing needs of modern students is vital, there is a selection of key points to bear in mind in order to identify the next student property hotspot.
New Supply in the Right Location
With a current supply and demand imbalance of three full-time students per available student bed space, the UK is in desperate need of new student property developments – especially those of higher quality to match the changing demand from success seeking students.
Whilst good news for those looking to capitalise on this growing asset class, investors must tread carefully as there are major local inconsistencies between supply and demand.
As the popularity for the sector has risen, so has the risk for oversaturation in markets where large student numbers, high profile location names and strong pipelines have dominated, such as Liverpool; leading to a restricted potential for further rental growth.
However, a strong pipeline isn’t necessarily a sign that the market is on the verge of oversaturation, as certain locations are suffering from outdated stock or university provided accommodation situated a long commute from the main campus – leaving a gap for savvy investors to capitalise on.
Furthermore, cities such as Cardiff have been named as “Emerging Markets” due to councils’ recent decision to ease historically stringent planning restriction, to allow more private development in order to move students from low standard HMO’s to purpose built student accommodation (PBSA).
Focusing on delivering the right student accommodation in the right place – so called intelligent supply – rather than just increasing construction everywhere can help to optimise the returns available.
This will allow markets to continue to see a strong potential student rental growth, as the high demand for quality accommodation in the right location engulfs the strong pipeline.
Image: Cardiff University
The Potential of Emerging Markets
With a history of strict planning rules, several significant cities have been held back from achieving their full potential in the PBSA market, whilst other cities and towns have been steaming ahead.
Working in their favour, these cities saw student rents surge well past the UK average of 2.55% for the 2017/18 academic year, with Cardiff leading the market with a 5.8% rise reported, and Bath and Canterbury following with increases of 4.92% and 4.04% respectively.
As disparities between supply and demand prevail in these locations, strong growth is projected to continue in the coming years.
Limited construction is not the only issue in these emerging markets, there is also a major gap between the availability of studio apartments and en-suite rooms, with the first only accounting for 10% or less of the existing stock in the three cities.
Whilst the pipeline in Canterbury is working to readjust this gap, currently comprising entirely of studio apartments, Bath is only set to see en-suite rooms enter the market, while studio apartments in Cardiff only account for 26% of upcoming stock.
Therefore, developments providing studio apartments with high-specification communal areas, and at a good price point, could prove highly competitive in these limited markets – as students are savvier in their hunt for quality and cost-effective accommodation.
In the Hunt for Excellence
In a new era of high tuition fees, students are now looking for their own return on investment in the form of enhanced career prospects.
Introduced by the Department of Education in England ahead of the 2016/17 academic year, the Teaching Excellence Framework (TEF) is set to give students a guide to which universities provide the highest standard of education in the UK.
Whilst a voluntary scheme to enter, the universities need to meet a strict set of criteria in order to participate, and will receive either a Gold, Silver or Bronze rating.
Universities with a higher ranking are also set to see a potential increase in demand from success seeking students.
This influx of students has led to many universities prioritising investment in new eye-catching buildings and educational resources over new accommodation, to match the excellence in education they offer.
This leaves the private sector to provide high standard PBSA for the ambitious students flocking to these top performing cities.
As only 46 universities received a gold rating in 2016/17, including the University of Cambridge and the University of Huddersfield, checking the TEF rating could help you to capitalise on students’ shifting focus toward a high quality education and the strong demand that could follow.
Despite taking into account the current supply in the market, the emerging pipeline and the quality of education provided in a city or town, a student property situated in the wrong location could have major effect on future demand.
In a recent survey, 72% of students stated that one of their top priorities when choosing accommodation was the proximity to the university, and only 47% were looking to be close to local amenities.
In certain towns and cities, the university provided accommodation is situated far away from the university campus, forcing students to commute a long distance if choosing these apartments.
With many universities being situated in the centre of the towns and cities, investors have the opportunity to benefit from demand from both students looking to be close to campus as well as entertainment.
Furthermore, in cities home to more than one universities or to large universities with several campuses across the city, many developers have concentrated their student properties around the largest university's main campus.
This leaves excellent opportunities for savvy investors to capitalise on developments situated closer to the other universities and campuses, by attracting students who have their main place of education at these locations.
By using these key points to research the unique possibility provided by a university town or city, you could identify the potential for continued growth in the location in order to find your next PBSA investment.
If you are looking to expand your portfolio this year, our Property Investment Hotspots page could help you find developments available in locations targeted to be hotspots in 2018.