Shaping up student accommodation

19 December 2012

Chris Baguley, managing director of Bridging Finance Limited, a specialist lender of short-term finance, says in an increasingly competitive marketplace student landlords must offer top notch facilities to compete with purpose built student blocks.

Despite the negative impact of university fees there are still thousands of students every year looking for quality accommodation. The number of landlords in the UK is on the increase as many realise what a lucrative career this can be. The potential return on investment by renting to students is reaching record levels with landlords receiving income from both rent and from the capital appreciation of the underlying asset value of the property.

Student property investments have out-performed all other asset classes in the UK having returned 12 per cent while standard property funds generated just 1.2 per cent returns. The student property market is now worth £200 billion and growing faster than ever before.*

A record £2 billion was invested in student accommodation in the UK in the first three quarters of 2012 - an increase of 145 per cent on that invested in the first nine months of 2011.**

The top 20 university towns also trade, on average, at a premium of £73,005 (or 37 per cent) to the average UK house price. ***

The threat of student blocks
However, traditional student landlords are now under threat from purpose built student blocks that are flooding the market. Many of these accommodation blocks offer guaranteed rents and are tied in to the university and promoted by them. They are often also close to campuses, have city centre locations and include bills. For example BGSA developers in Blackburn have built Cathedral Court, luxury residential student accommodation, complete with retail shops and public and contract car parking. The development is located close to the college, the Mall and the town's transport hubs.

Similarly Terrace Hill, a leading UK property development and investment group, has announced a joint venture with Osborne to build student accommodation in Southampton city centre. The scheme is well located, has good transport links and has been pre-let in its entirety to the University of Southampton on a 38 year lease. The scheme includes a shop, café, gym and learning centre at ground level.

Investors have realised that during an economic downturn student accommodation performs well because of the limited void periods and the high demand for good quality housing in good locations.

How to protect your market share
With such fierce competition traditional student landlords need to offer new services and facilities in order to compete. Many private landlords are now busy installing plush kitchens with dish washers, flat screen TVs and super fast broadband. They are also offering tenants fixed rents rather than increasing costs every year. This competitive option helps with budgeting and limits student debt. Some tenants are boycotting university owned flats and sticking with private housing as it offers more privacy and is preparation for life as a young professional.

The stereotypical student hovels characterised in the BBC's The Young One's is a thing of the past. My advice to private landlords is to not scrimp on extras in properties. For example installing double glazing and a proper security system will pay dividends as students now demand safer homes. If landlords focus on the advantages of their properties they can win over the lucrative student market.

* http://www.selectproperty.com/2012/11/student-property-the-uks-top-asset-class-for-the-2nd-year-running
**http://propertytalklive.co.uk/student-accommodation/10758-investment-in-student-accommodation-soars-to-record-p2bn
*** www.propertyhawk.co.uk