Accommodation for the first year was generally provided in halls of residence operated by the university and then the subsequent years were either in the same (if space was available) or in university-owned houses (HMOs) with many students opting for the private sector where landlords provided a variety of accommodation to suit different budgets.
Based on my own experiences central heating, constant hot water and decent kitchen and bathroom facilities were seldom available but that may be a reflection of the times and my particular spot in sunny Hull.
Today’s students however are a very different breed and their expectations are considerably enhanced; providers of student accommodation need to understand this and tailor their products accordingly. This means: en suite facilities, internet connections and big screen TVs are all considered standard in the better quality private accommodation, with rent often including utilities and internet. These are the properties which will command the highest rentals and have the lowest voids so any landlord relying on old-style HMO properties with shared facilities will be lower down the list when students are looking to chose where to stay and will achieve lower rental.
Rental yields are higher on HMOs than single properties and students are a captive market. They seem to have absorbed the increase in tuition fees. Don’t forget that parents are a large influence here and will often be prepared to assist their son or daughter to afford good quality accommodation – you will usually have the benefit of the parental guarantees also in the unlikely event of any payment issues which assists cash flow for the landlord. There is also an increasing influx of overseas students, particularly from China and the Far East, looking for the premium properties and many of these pay their rental upfront which is an added bonus.
Shawbrook is supportive of experienced operators in the student accommodation market and will consider lending against both older-style HMO-type units as well as the more modern self-contained properties and cluster blocks. Ten-year interest-only facilities are available with LTV up to 75%.
Key considerations for student property:
Location – is there strong demand for the university strong and likely to remain so? Or, is there a risk that it may lose its reputation and fail to attract sufficient students and therefore increase your voids? Could the private sector fill any likely gap if this happens? Is your portfolio too concentrated? Lenders are reluctant to lend to someone with many properties all in the same street. The ideal investor is someone with student properties spread around different university towns/cities.
Competition – generally in the major university locations there is an imbalance of demand against supply so there should be sufficient students seeking accommodation but be aware of any pending schemes which may affect the local market.
Costs – yields for new quality purpose-built student accommodation are around 6.50% which reflects the strong cash flow that can be generated. Lower quality properties will have higher yields with the old-style HMO properties being at the lowest end of the scale. Always bear in mind that wear and tear can be quite significant and it is now quite common practice for utilities to be included in the rental payment. A rolling programme of repairs/refurbishment will be needed if your properties are to be attractive to the next student intake.
Andrew Faed, Regional Development Manager, Shawbrook Bank
