Today, we are hugely excited to announce that we will be launching Purpose-Built Student Accommodation (PBSA), alongside our Residential properties.
PBSA is currently the UK’s strongest performing property sector, attracting institutional investors from across the globe – but it isn’t being offered to non-institutional investors in the way it should be. We’re changing that. And the first opportunity will arrive in the coming weeks, with a target yield of over 6%, after all costs and fees.
As with all of our investments, your dividend yield qualifies for the £5,000 annual dividend allowance (£2,000 from 6th April 2018) and capital returns can be realised via our Resale market, allowing investors to make use of their £11,300 annual capital gains allowance.
What is Purpose-Built Student Accommodation (PBSA)?
Purpose-built student accommodation (PBSA) differs from the student accommodation many of us remember. Today’s students are shunning the traditional house shares and out-of-date halls of residence as they’re perceived to be below par, with PBSA gaining in popularity from a more discerning student population. Purpose-built student accommodation is perfectly designed to meet the exacting standards of today’s students, ranging from studios to flats with a cluster of six or seven rooms sharing living quarters. Shared social spaces provide cable TV, laundry facilities and even organised social events, with many also offering gym facilities. Positioned in central locations and with all-inclusive rents PBSA has proven very popular with students, particularly international students, across the UK.
Why is it an attractive investment?
According to Cushman and Wakefield, demand for PBSA is high, with the average national student to bed ratio at 2.3 students per bed space available through PBSA, up from 2.14. However, supply is restricted, which adds up to a powerful investment opportunity.
UK student accommodation has enjoyed tremendous growth over recent years, with international investment almost doubling over the last two years and institutional investors acquiring big interests attracted by compelling yields and strong capital growth. So why the growing interest in student as an asset class? And what types of returns can investors expect from student accommodation?
- High Income and Attractive Total Returns: A Compelling Combination
Purpose-Built Student accommodation is a high yielding proposition, which is particularly attractive in the current environment of low interest rates. As the income for PBSA grows (which it has been steadily), so does the value of the building.
PBSA saw rental income growth of 2.7% in 2016 on average across all available accommodation. In the academic year ending August 2016 PBSA delivered a 10.2% total return, with a combination of 5.4% rental income and 4.8% capital growth according to CBRE. We are targeting a dividend yield of 6%+, after all costs and fees.
The below chart shows how PBSA has compared to both residential and commercial property on a total return basis in the UK over the past 5 years:
Historically on a risk reward evaluation PBSA delivers higher average total returns than residential property in the UK with a similar level of volatility, and outperforms commercial property on both risk and reward, making it a very attractive asset class.
Table: Risk reward by property sector 2011 to 2016
Note: click to zoom in
- Stable demand and low volatility
Purpose-built student accommodation benefits from stable and growing demand for student bedrooms across the UK. The UK student accommodation market is supply constrained with James Pullan, Head of Knight Frank Student Accommodation commenting that “the market is still structurally undersupplied in all core university cities”. In 2016 there were more students in the UK than ever before with 1.7m now studying full-time, up 0.4% from the previous year.
PBSA also isn’t affected by economic cycles in the way that other assets can be, because it relies primarily on demand from students. During the global financial crisis, for example, data from Lasalle Investment management shows that rental growth for PBSA continued at 3%-4% per year, while rental values fell sharply in the wider commercial property market between 2007 and 2010.
The income offered by PBSA is also particularly stable. Students typically sign a 48 week contract, with the additional security of guarantors, which provides certainty for rental income and also protects against the risk of void periods.
- Why it’s better than buying a single room
An investor with enough capital to buy a room in a PBSA block themselves may find themselves wondering, why would they invest through Property Partner instead? Aside from the increased ease and security, our expertise and buying power, along with diversification opportunities and increased liquidity we offer, we also believe there are major problems with buying a single room.
The main issue with buying a single room in a student accommodation block is around control over the asset and potential exit. While buying a single room in a student block may appear to be similar to buying a flat in a larger block, it isn’t.
The UK residential property market is in the majority driven by owner occupiers who acquire individual flats and homes. By contrast, the market for individual student rooms is much smaller, with the majority of buyers being institutional investors looking to buy entire student blocks. This makes buying an individual student room risky as when the owner comes to sell it is unclear who potential buyers could be, how long it might take to sell and what fees would be involved.
Buying an individual flat in a student block also puts total reliance on third party management over which the individual buyer has no or very little control. Sometimes a rent guarantee can help to alleviate this reliance, but this is likely only for a short period of time, and doesn’t cover the entire time horizon of what should be considered a long term investment.
Previously it has been very difficult for individual investors to invest in entire blocks, now Property Partner is making this preserve of institutional investors available to all.
Read our blog about the risks associated with Purpose-Build Student Accommodation here.
- JLL UK Student Housing Bulletin Q2 2017 http://www.jll.co.uk/united-kingdom/en-gb/Documents/property-sectors/alternative-investments/UK-Student-Housing-Bulletin-Q2-2017.pdf
- Savills Spotlight: World Student Housing Report 2014
- Knight Frank Student Market Review 2016
- Cushman & Wakefield UK Student Accommodation Report 2016/17
- Savills Spotlight: UK Student Housing 2017
- CBRE student accommodation total return index, 2016
- Lasalle Investment Management, Student Accommodation in the UK, September 2014
Property Partner ‘time to sell’ is calculated as a weighted average of the time it takes to sell shares at or below the 30 day weighted average share price.
Important notice: Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested. Forecasts are not a reliable indicator of future performance. Gross rent, dividends and capital growth may be lower than estimated. 5 yearly exit protection or exit on platform subject to price & demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary.
Financial promotion by London House Exchange Limited (8820870); authorised and regulated by the Financial Conduct Authority (No. 613499).motion by London House Exchange Limited (8820870); authorised and regulated by the Financial Conduct Authority (No. 613499). See Key Risks for further information.