Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
University towns and student accommodation are often attractive options for buy-to-let investors, and with rising demand from students, the prospects for this market seem a lot better than other buy-to-let sectors.
Just like the rest of the housing market, buy-to-let has been hit by rising mortgage rates and falling demand.
Landlords now face paying 6.61% on average for a two-year fixed rate buy-to-let mortgage while some may be deterred by the extra stamp duty and new rules and regulations when it comes to renting out property such as energy efficiency requirements.
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Falling property prices and rising mortgage rates may make investors worry about the yields they will receive when renting out a property as well as the capital appreciation.
This has created a shift in demand in many areas popular with students and some are moving from a sellers’ to a buyers’ market, according to property advice website The Advisory, giving purchasers more room to negotiate.
Student accommodation demand
TheAdvisory has created a PropCast tool that looks at the number of properties marketed in a postcode district and calculates the percentage of properties listed as under offer or sold subject to contract (SSTC). The percentage is then illustrated as a temperature reading.
A very cold buyers’ market is defined if up to 25% of homes on the market are listed as under offer, while a figure of 26% to 25% represents a cold buyers’ market.
A market becomes hot or a sellers’ market when 35% to 49% of the local stock is under offer, while a measure of 50% to 100% is very hot or an extreme sellers’ market, according to the PropCast tool.
Demand, based on the percentage of listed homes under offer, has fallen in all but one of the top 20 university postcodes, PropCast data shows.
| University | Sep-22 | Sep-23 | %Change |
|---|---|---|---|
| UCL | 20 | 21 | 5% |
| University of Edinburgh | 42 | 42 | 0% |
| Queen Mary University of London | 29 | 28 | -3% |
| University of Glasgow | 74 | 69 | -7% |
| University of Manchester | 53 | 46 | -13% |
| University of Bristol | 76 | 64 | -16% |
| University of Sheffield | 69 | 57 | -17% |
| Newcastle University | 64 | 51 | -20% |
| University of Cambridge | 70 | 55 | -21% |
| Imperial College London | 23 | 18 | -22% |
| University of Oxford | 55 | 42 | -24% |
| Lancaster University | 61 | 46 | -25% |
| University of Southampton | 71 | 53 | -25% |
| King’s College London | 30 | 22 | -27% |
| University of Leeds | 66 | 48 | -27% |
| University of Birmingham | 61 | 44 | -28% |
| University of Warwick | 64 | 45 | -30% |
| University of York | 67 | 47 | -30% |
| University of Exeter | 70 | 47 | -33% |
| University of Nottingham | 68 | 45 | -34% |
| London School of Economics and Political Science | 21 | 10 | -52% |
Source: PropCast
The University College London postcode has seen the percentage of listings under offer rise by 5% annually since September 2022 to 21%. This gives it a temperature of 21 degrees, making it a very cold buyers’ market where sellers may be more open to offers below asking price.
In contrast, the London School of Economics postcode has seen a 51% drop in demand to 10% or 10degrees, also making it a good market for buyers due to the lack of competition and surplus property stock that isn’t selling.
Agents highlight that as well as being popular with buy-to-let investors, London remains attractive for overseas buyers.
“Education is a key driver for the private rental sector in London, being home to some of the most prestigious universities and schools in the world,” says Liam Monaghan, managing director at buying agent London Central Portfolio.
“Many overseas buyers purchase a property to live in while their children attend a school or University here. It acts as a bolthole where they can spend time in London over the warm summer months and during the school holidays. It is also a great area for a buy-to-let investor with the continuous high demand for small, centrally located flats from students.”
The hottest student accommodation markets
London university postcodes bear the brunt of most of the dips in demand, perhaps reflecting the higher house prices.
All university areas have seen demand fall but most outside of London remain hot, making them sellers’ markets. That means buyers may face a shortage of property to buy and may not be able to negotiate too much of a discount.
The hottest university postcode is the University of Glasgow where despite a 7% fall in demand, 69% of listings are under offer as of September 2023.
That gives it a temperature reading of 69 degrees, making it a very hot or extreme sellers’ market.
Similarly, the University of Bristol postcode has seen demand fall, with the percentage of listings under offer down 16% but its temperature reading is 64degrees.
The University of Bristol has a world-renowned reputation,” says Charlotte Strang of Bristol agent Strang & Co.
“It also has one of the highest retention rates for professionals staying on after university due to the broad range of industries here.
“Bristol has a thriving technology sector and is popular with medics and dentists.
“Interest rates and the cost of living crisis have weighed on demand but there is still demand out there for the limited stock.”
| University | Sep-22 | Sep-23 | %Change |
|---|---|---|---|
| University of Glasgow | 74 | 69 | -7% |
| University of Bristol | 76 | 64 | -16% |
| University of Sheffield | 69 | 57 | -17% |
| University of Cambridge | 70 | 55 | -21% |
| University of Southampton | 71 | 53 | -25% |
| Newcastle University | 64 | 51 | -20% |
| University of Leeds | 66 | 48 | -27% |
| University of Exeter | 70 | 47 | -33% |
| University of York | 67 | 47 | -30% |
| University of Manchester | 53 | 46 | -13% |
| Lancaster University | 61 | 46 | -25% |
| University of Warwick | 64 | 45 | -30% |
| University of Nottingham | 68 | 45 | -34% |
| University of Birmingham | 61 | 44 | -28% |
| University of Oxford | 55 | 42 | -24% |
| University of Edinburgh | 42 | 42 | 0% |
| Queen Mary University of London | 29 | 28 | -3% |
| King’s College London | 30 | 22 | -27% |
| UCL | 20 | 21 | 5% |
| Imperial College London | 23 | 18 | -22% |
| London School of Economics and Political Science | 21 | 10 | -52% |
Source: PropCast
