Student accommodation providers have always had challenges to overcome, just like any property developer or commercial landlord has. But aside from the problems that recur year after year, what issues should you be looking out for now? We’ve looked at the challenges you’re likely to come up against now and in the near future as a student accommodation provider.
Supply-Demand Ratio and Market Saturation
Demand for private-sector purpose-built student accommodation continues to grow, with headlines regularly highlighting the shortage of PBSA throughout the country. As of 2017, the market is expected to reach a value of £5.3bn, a 17% increase on last year. However, as supply continues to grow, it’s vital to start looking at the sustainability of this rapid growth and considering what will happen when student accommodation reaches market saturation.
For now, the best way for you to avoid being hit by market saturation is by focusing on up-and-coming cities for student accommodation, where competition isn’t as fierce between providers. Unsurprisingly, cities in the south of England aren’t found on this list as the high land values offers low returns for developers.
Thankfully, there are plenty of underserved cities in the north of England, and capitalising on those cities will ensure adequate demand for your property, fewer vacancies and higher yields.
The Impact of Brexit
While we don’t expect Brexit to have a negative impact on the student accommodation market, it is a topic that won’t be leaving the headlines any time soon. The truth of the matter is that EU students make up a small minority of international students in the UK, so unless something drastically changes, this isn’t something you need to worry about.
You’ll no doubt be following property news to keep up with industry trends, but make sure that you take Brexit-related news with a pinch of salt because domestic student numbers still provide a reliable source of income.
Affordability is becoming an issue for both providers and tenants, with students increasingly under pressure to make their maintenance loans stretch to the cost of rent alone, never mind the cost of living. The 2017 National Student Money Survey revealed that 84% of the surveyed students were worried about having enough to live on – a 4% increase on the previous year.
This can put you in a difficult position, as rent that is too high will attract fewer tenants, but you’ll need to balance their needs with achieving an adequate yield.
Another issue that arises from affordability is the uncertainty of whether or not tenants will be able to pay their rent. To give you peace of mind and security, you should always use guarantors for your student properties, as they will be liable for paying the rent in the event that your tenant doesn’t.
Increasingly High Expectations
As prices are increasing, so are expectations from tenants. Students now expect on-site amenities, fast Wi-Fi included in the rent, and modern designs that are finished to a high standard. What students expect from their accommodation now isn’t the same as what they were looking for in the past.
It’s difficult to pinpoint whether higher expectations are a result of higher rent prices, or the other way around, but what is clear is that this is an ongoing issue both for students and accommodation providers.
The best way to tackle this issue is by taking an honest look at what your accommodation provides to students and whether the rent you charge accurately reflects this.
You should also think about how you market your property. If it’s aimed at students looking for affordable housing options, then you need to emphasise this in your marketing – because this particular target audience will be more concerned about the price of rent than they will be about having access to an on-site gym. On the other hand, if the selling points of your property are its modern design and the additional benefits that are included in the rent, focus on highlighting what students get for their money rather than how much they will be paying (although, of course, that is going to be important).
Overseas investment in the British student accommodation sector isn’t fresh news, but the recent drop in the value of the pound will no doubt attract further investment. If market competition between domestic investors wasn’t enough, now there are additional competitors to factor in, which will no doubt drive up the costs of building and buying student accommodation.
Recent research by estate agent Savills revealed that international investment in the student accommodation market increased to 64% of the market share, up from 35% in 2015.
The majority of the foreign investment has been in student housing REITS, which is good news if your student property is part of a larger portfolio, because this investment will be an asset rather than an issue.
Backlash From Local Community
As most student accommodation providers are commercial landlords or property developers, new-builds can often face criticism from the local community.
This backlash is often centred around the concern that the land or property in question could have otherwise been used by local investors, ensuring that the profits would go back into the local economy.
There is no easy solution to this issue, but focus on using local companies – where possible – in the building, servicing, and furnishing of the accommodation, and really emphasise how the local community will benefit from the development.
If you’re looking for the latest insights on student accommodation and the student property market, we regularly update our blog with expert advice. You can keep up with our most recent updates by following us on Twitter or LinkedIn.