According to property partner Gandesha, between 2012 and 2016, investing in purpose-built student accommodation (PBSA) provided returns of 11.8% per year.
Dan Gandesha from the company said that the reason for this was because:
“During tough economic cycles where it’s harder to secure a job, people are more likely to go to university and extend their studies. That increases demand for PBSA.”
Following the 2008 financial crisis, rental values of most commercial property fell, but rents of PBSAs grew between 2% and 4%.
Mr. Gandesha does not claim that investing in PBSA is risk-free, as Brexit has created financial uncertainty that could affect the property market. Building PBSAs is not cheap, but with expected returns of 11.8% per annum, investors that can afford the cost are attracted to this sector. Typical returns for commercial property are lower at 7.4%, and residential property stands at 7.8%
Many institutional investors are attracted to PBSA because of high returns, capital growth and strong demand.
Rooms in PBSA generally charge higher rents, with some London student rooms costing up to £650 a week. Most rooms are fully-furnished and have facilities such as catering and broadband access.
Commercial mortgages are available to finance student accommodation. For investors that cannot afford the large constructions costs of student accommodation, there is also a high student demand for houses of multiple occupation (HMOs), where rents are lower but can still provide landlords with good yields. Commercial mortgages are available to purchase or convert existing property to HMOs.