It’s stating the obvious to say that, over the last year, the pandemic has had a major impact on the student rental market, but what does the future hold for investors in this sector? And what does that mean for your business?
Analysis by lettings platform, Goodlord, has found that during 2020, revenues from student lets dropped by 30 per cent compared to figures from 2018 and 2019.
Student accommodation is predominantly let by students in their first year and with so many students choosing to defer their university studies, or live at home whilst learning is remote, demand has naturally dropped – and this has impacted prices. Goodlord says that during 2018 and 2019, the average monthly rental price of a student property was £1,265. In 2020, it was £1,012 – a fall of 20 per cent on average across England and Wales.
The outlook, however, looks positive. Where students deferred entry last year, the demand for university places this September is likely to be higher than usual – and, of course, the fast pace of the vaccination programme means that all students should have had the opportunity to be vaccinated by the time the term begins.
According to Knight Frank analysis of UCAS data, early indicators are that there will be an 8.4 per cent increase in university applications for the 2021/22 academic year compared to 2020/21.
This is the highest comparable year-on-year increase since 2010, and Knight Frank says it is driven predominantly by an increase in UK applications, which are 11.6 per cent higher than last year. The rise coincides with an increase in the UK population of 18-year olds – the first time in six academic cycles where this has been the case.
Global reach
Despite the pandemic, there is also anticipated to be an increase in applications from international students residing outside of the UK. In 2020/2021, this number increased by 17.1 per cent on the previous year, driven by particularly strong demand from China and India. High-end purpose-built student accommodation remains especially popular with overseas students who may be unfamiliar with the local housing market.
Another trend that will be important for investors in this sector to note is the differences in demand for places at universities in different cities, and across different groups and tiers of universities.
Since 2012, demand by students to study at higher tariff universities – which typically demand higher exam grades for entry – has increased much faster than demand for lower tariff universities. Consequently, while student numbers at lower tariff universities have remained flat since 2012, they have grown by 25 per cent at higher tariff institutions – and this naturally has an impact on the demand for accommodation.
So, while investors in student accommodation have taken a hit in the last year, the ongoing strong demand from students, particularly from overseas students, and particularly at well-regarded universities, paints a positive picture for the future. Indeed, some investors may see opportunity in snapping up distressed stock now with the hope of benefitting further down the line – and this presents opportunity for you.
There continue to be lenders with an appetite for student accommodation and product options, such as bridge to let, that can provide investors with flexible finance to buy, renovate or repurpose a property before switching onto longer term funding when it is ready to be let.
This combination of strong student demand and competitive lending options means there continue to be opportunities in student lets.