21 Mar Student accommodation investments – What should you look for?
Occupancy rates in well located, quality student accommodation usually run very close to 100%. The Financial Times recently reported on a study by EY into student accommodation. The article emphasised that 2015 was a record year for investment into student accommodation with £5.9bn of investment with 2016 coming in second with £4bn of investment. At Broadgate we are aware that landlords of sub-standard student accommodation in poor locations are finding things more challenging with the increased supply of quality purpose built student accommodation. Furthermore the article stated that in coming decades, providers of purpose built student accommodation will have to provide the best accommodation locally, in order to sustain pricing levels, when faced with increasing competition, but what constitutes ‘best accommodation locally’?
We believe the key factors are:
- Location – Developments need to be located within comfortable walking distance of the university if they are to command high rents.
- Size – A standard en-suite student room will tend to be 14²m with a small one 12²m. A standard studio will be 18²m, and a small one 16²m. Most student accommodation providers will consider anything over 20²m as their luxury product.
- Facilities – Good communal facilities are essential to command high rents. Some student accommodation operators offer services such as free breakfast and are beginning to introduce smart technology to ensure they offer the best accommodation locally.
- Quality of finish – Students looking for a high standard of accommodation will be looking for a good quality finish, this isn’t often a feature of many student halls. Stone worktops, fold up beds and smart technology are becoming more prevalent.
It is extremely rare for student accommodation developers to maximise all of the above, after all, value in the sector is driven by income returns and these are maximised by increasing rental income per ²m and keeping build costs down. Large rooms with an average finish may well constitute best accommodation locally, as could average size student accommodation with excellent facilities. If you are looking to buy student accommodation, as with any property purchase try and tick as many of the above boxes as possible, don’t try and tick them all.