Student property offers a way into PRS for London landlords

Student property offers a way into PRS for London landlords

The strength of the private rental sector in London, characterised by high prices, strong yields and a real demand from tenants, has meant more and more investors looking to get a piece of the action in the last few years. 

However, as it becomes ever pricier to buy suitable stock for tenants, more landlords are now looking to an alternative option. Traditional buy-to-let homes for young professionals have been a staple in London for some time, but now an increasing number of buyers are looking towards student property. 

With high yields of around five per cent on average and a much lower entry price for suitable stock, the student property market offers landlords who might not otherwise be able to afford it a way to get themselves into London's private rented sector. 

And of course, these aren't the only benefits of investing in this sort of stock. Student numbers across the UK suffered a fall in the wake of the fee hikes in 2011. However, since then we have seen perpetual rises, and earlier this year UCAS reported a record number of applicants for the upcoming academic year. Demand is clearly there, and it's only strengthening all the time, which paints a strong picture for landlords. 

The impact that this new desire to invest in student property has had is easy to see at the moment. According to the latest data from CBRE, we are now seeing more money pouring into this particular branch of rental property than ever before. 

Last year, CBRE said the total amount invested in student property over 12 months amounted to some £2.35 billion. However, in just the first six months of this year, this total was blown away, with £3.98 billion - almost double last year's annual total - being invested in just half a year. 

Some £1.98 billion of these transactions in the first half of 2015 were seen in London, as the capital became a stronger site for investment in student property, which had been more popular further north in the last two to three years. 

"So long as demand outstrips supply, upward pressure on both rents and capital values will continue to make the market an attractive proposition for investors, and we don't expect the market to come off the boil for some time," said Jo Winchester, head of student housing advisory at CBRE.

She said that for many investors, this type of stock represents a much lower risk and lower cost way to get into London's very competitive buy-to-let market. 

"Although there are differences between residential and student accommodation operational models, some larger student housing operators and investors in the sector are beginning to explore build to let development and investing in the private rented sector. As this happens, it is possible that the operational models could become more closely aligned," she concluded.