Property lender Together’s findings from their Commercial Market Report reveal that nearly one in five property landlords’ see student housing as the most appealing option for their next investment. They surveyed 500 property portfolio owners to reach these conclusions.
Every September, the topic of the lack of student housing hits the headlines. Tales of teenagers having to drop out of top universities’ across the country because they can’t find somewhere to live frequent to the front pages.
The latest UK student accommodation statistics suggest that there is going to be 2.2 million students needing accommodation by 2026, and currently, that means a shortfall of no fewer than 620,000 student beds is anticipated.
Some areas have seen their student populations rise by tens of thousands over the last decade – meaning the demand for purpose-built student accommodation (PBSA), particularly from international students, continues to outstrip supply.
The issue of the lack of student beds in university towns and cities is far from new, and is one that’s increasing each year. With the demand from students growing, and outstripping supply, there’s a clear opportunity for property investors looking to diversify their portfolios.
Investor challenges
Despite the clear demand for more student beds, it can be challenging for investors to access the funds to kick start their development.
Often, challenges for developers arise when trying to make the initial land purchase, as plots of land right for PBSA developments are often snapped up quickly. Sometimes, thinking outside of the box can help you source the right plot.
For example, there is a big supply of brownfield land in key student areas. A good example of this is Yorkshire, where they found that £53.2bn of brownfield land ripe for development was available. It comes as an office block could make way for 20-storey Leeds PBSA scheme.
There is potential for 175,602 new homes across the region, including PBSA. This highlights an opportunity to not only address the shortage of student housing in popular university cities such as York, Leeds and Sheffield, but also go some way towards alleviating the UK’s overall housing deficit.
Together’s research found that over one in five (22%) landlords and developers say they are not confident about being able to access additional finance if they wanted/needed to, and over two thirds (69%) anticipate the amount they have to borrow to support their investment strategy will rise in the next 12 months.
Financing
With the demand for development-ready plots of land being high, investors are having to move quickly. Short-term or ‘bridging finance’ is one fast and flexible solution – which can allow investors to get in ahead of the competition to buy plots of land which may be in high demand. Together highlights that bridging finance literally ‘bridges the gap’ between the purchase of land (or property) and its sale or refinance onto longer-term borrowing.
Development finance is also available from specialist lenders to pay for the construction of student accommodation. Lenders such as Together can agree an overall finance facility with a PBSA developer, working in partnership with them through each stage of the development. Key milestones for the construction project are agreed beforehand, with the lender releasing funds for the next stage of development once the previous phase has been completed.
This gives the lender confidence that the project is on track for completion, allowing much-needed modern student accommodation to meet the demands of the market.
It’s clear landlords and developers should bear in mind the potential value of expanding their portfolios by investing in student housing. High demand, low supply and record university admissions highlight the gains to be made, and looking to brownfield land for such developments could be fruitful.
