Having always been a safe and secure asset class with a strong demand, UK student investment property has thrived over the last few years, rapidly outpacing the UK’s conventional buy-to-let accommodation market.
Student property has been so popular as an investment opportunity the sector has grown rapidly, with The Times calling buy-to-let student accommodation the top asset class in the UK’s property market in 2012. The momentum behind the industry has not slowed down and Knight Frank’s 2014 Student Property report stated:
“Total returns in the student accommodation sector have outperformed all other traditional asset classes.” Knight Frank
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Compared to other property investments, student accommodation stands out by consistently offering high returns. Investors are able to expect an average of over 7% as a rental yield, which far exceeds typical values of 5.3% for residential buy-to-let properties in the UK, according to LSL Property Services.
The popularity of student accommodation among investors is ultimately driven by consistent occupancy rates of 99% or higher and a structural undersupply. The strongest performance in student property so far has been centred around Russell Group university towns and cities where the UK’s top 24 universities are located. These Universities, including Bristol, Exeter and Southampton not only attract students from the UK but also international students.
2014 UCAS figures support this, showing Britain’s top universities have grown by more than a third in just two years amid rapid expansion of the higher education system.
Knight Frank anticipates this asset class will continue to be strong in the future, saying:
“We forecast 2014 will see increased rental growth, sharpening yields and improved investment performance for existing funds.” Knight Frank
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A significant increase in overseas students has been one of the main contributors to the student property investment boom. The UK is one of the world’s largest host countries to foreign students, with Britain attracting international students as a result of its high-quality education facilities, ranking among the best in the world. Furthermore, tuition fees in the UK are relatively low for international students, compared with other universities around the world. Equivalent courses in Australia and the USA can be double or even triple the price of education in the UK.
In 2011/12, there were 435,235 international students studying in the UK, out of a total 2,496,645 people attending university in the country, according to the Higher Education Statistics Agency (HESA). Representing nearly a fifth of all students in Britain, foreign students put a considerable strain on an already undersupplied student property market.
International students have also altered demand for a student property investment by only opting for very high-quality, fully managed purpose-built accommodation. While historically, students in the UK favoured basic, shared student rooms, today’s demand is for high-quality, self-contained apartments.
Knight Frank predicts international student numbers will realistically grow 15% to 20% between 2014 and 2019, with an anticipated rise of 4% in 2014 alone. Therefore, student property investors can expect demand for high-spec purpose built accommodation to increase over the years, causing an increase in occupancy rates and, subsequently, their student property investment rental earnings.
Vita Student is ahead of schedule to achieve 100% occupancy in 2014. The high occupancy rate demonstrates the security of the Vita Student buy-to-let investment model as it helps to safeguard future rental returns and provide investors with a stable income. The majority of the tenants are going into their second, third or postgraduate years of study and approximately 70% are from overseas, predominantly from South East Asia and Europe.