The UK is currently facing a dire shortage of purpose-built student accommodation (PBSA), and this trend is expected to continue into the next academic year. The demand for student housing far exceeds the available supply, with an estimated 3.1 students for every available bed. Universities such as Manchester and Bristol have even resorted to housing students in entirely different cities, causing significant disruptions to student life and driving up house prices for local residents. However, these challenges present lucrative opportunities for investors to address the housing crisis while enjoying strong potential returns.
Looking ahead, it is evident that demand for student accommodation will continue to outstrip supply. This shortage is primarily caused by the increasing number of people attending university. Today, there are 25% more full-time students seeking accommodation compared to 2010. The COVID-19 pandemic has further exacerbated this demand, as students achieved higher grades through alternative assessment methods. Consequently, more students have gained entry to their university of choice. Postgraduate student numbers have also surged, growing by 9.8% in 2019-2020 and 15% in the subsequent year. In the 2022 academic year, the University of Manchester faced an oversubscription issue, with over 350 anxious freshers waiting for accommodation. The university was forced to offer £100 per week to students who accepted housing in neighbouring cities such as Liverpool or Huddersfield. Similarly, Bristol University experienced an even more pronounced problem, with over 500 students on the waiting list. In desperation, the university offered them housing in Newport, a city in an entirely different country. Glasgow University has reached a point of overwhelming demand, urging students to defer their enrollment if they cannot secure suitable accommodation. This “structural undersupply” of student accommodation has far-reaching effects, including significant rent increases exceeding 10% in cities like Bristol.
The number of students is expected to grow steadily, even during economic downturns. Investing in student accommodation is often considered recession-resistant, as student numbers tend to increase when unemployment rises. This trend was evident during the 2008 financial crisis, when the number of UK students surged. Applications rose from 534,000 in 2007 to 700,000 by 2011, a 31% increase. A similar pattern emerged during the 2013 recession, with record-breaking numbers of student acceptances in subsequent years. Despite concerns that lockdowns would lead to a decrease in student numbers, the opposite occurred. Applicants reached new record highs in 2020, 2021, and 2022, with home student applications increasing by 2.1% in 2020 and 5.1% in 2021. KPMG researchers estimate that the UK economy will shrink by a further 1.3% in 2023, indicating that student numbers will continue to rise in the year ahead. Knight Frank Research supports this view, projecting a 16% increase in student numbers by 2030, with a potential 0.4% recovery in 2024. These trends suggest that student accommodation remains an attractive option for strategic investors.
Investing in student accommodation offers stable yields for investors. Over the years, student accommodation has provided average yields of 6% to 7% for London-based lets and 3.5% to 6.3% for accommodations outside of London. However, it is crucial to strike a balance between affordability and amenities. Today’s students seek comfortable living spaces at affordable rates without exhausting their maintenance loans. Achieving the right balance between amenity provision and pricing is key to attracting students and maximising returns. At Hubb, we closely analyse these dynamics to provide the best possible service to students while ensuring strong returns for investors.
Mitigating risks is crucial when investing in student accommodation. By offering affordable but comfortable provisions, investors can help hedge against inflated housing market bubbles that often occur in student towns. Additionally, the financial support structures in place, such as state-backed student loans, provide some security as the majority of eligible UK students opt for these loans. However, it’s important to note that student accommodation investments are not entirely risk-free. Factors such as inflationary concerns, skills and labour shortages, financing costs, and planning policy can impact progress. At Hubb, we mitigate these risks by acquiring properties with a proven track record, ensuring a more secure investment.
In summary, investing in student accommodation presents a range of opportunities. With a growing demand for housing, stable yields, and the potential for portfolio diversification, it is an attractive option for strategic investors. By carefully analysing market dynamics, mitigating risks, and providing affordable and comfortable living spaces, investors can tap into the potential of this thriving sector. Join us at Hubb as we navigate the exciting prospects of student accommodation investment.
Source: Knight Frank, The Guardian, Stu Rent, STV News, House of Commons, Stripe Property Group, KPMG