Student housing still good investment for buy-to-let

The student housing market has been a resilient and stable investment during the downturn and that is forecast to continue, despite pressures on student demand due to increased tuition fees and threats to international student numbers through tougher visa controls, according to new analysis from international real estate adviser, Savills. 

Following weaker rents during the 2012-13 academic year, Savills forecasts total returns of 9.3 per cent for the 2013-14 year with static blended net initial yields at 6.3 per cent and rental growth of 3.0 per cent due to improving demand and restricted supply coming through.

“We are confident that student housing will continue to prove a counter-cyclical investment, but the market is not without its risks,” says Marcus Roberts, Savills head of student investment.  “Investors should consider investments on an institution by institution basis, remaining mindful of the city supply where there are multiple universities. 

“Some cities will have reached maturation relative to student numbers, while some universities will be more susceptible mid term to fee increases.  Over and above demand as defined by student numbers, university rankings are normally the first reference point for prospective students and a good indicator of investment risk.”

Applicant numbers are an early indication of student demand and while the increase in tuition fees up to a maximum of £9,000 per annum triggered a 6.7 per cent fall in applications for the current academic year, numbers are up by 2.7 per cent for the 2013-14 year. 

However, demand from outside Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5 per cent over the last six years. Figures released by UCAS show a 9.9 per cent increase in number of students applying to UK universities from China and a 19.3 per cent on those from India, suggesting that while recent student  visa reforms have tackled abuse, students are not put off studying in the UK’s universities.

The ability to attract the most able, internationally mobile students is vitally important to the standing of the UK’s best universities on a world stage.  Any government policy targeting a reduction in net immigration should take care to differentiate between those students attending accredited universities and those attending less well regulated educational establishments.

Using the combination of the measures discussed in this report we have constructed an overall ranking system of university towns and cities across the UK.

Those locations within the ‘First’ category offer the strongest demand for accommodation but competition may be strong while locations in the ‘Pass’ category are considered those weakest demand indicators, although there may be specific reasons why investment is still warranted.