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Purpose-built student blocks can provide healthy returns for investors

Purpose-built student accommodation (PBSA) has seen strong rental growth over the years, even during the financial crisis, and Birmingham is one city where student property investment is on the rise.

Between 2012 and 2016, annualised returns for the PBSA sector totalled an impressive 11.8%, while residential property brought in 7.8% and commercial property made 7.4%, according to the CBRE student accommodation index.

The attractive yields are the result of a combination of factors, including high – and growing – levels of demand as the UK’s student population increases, as well as high pricing compared to standard student accommodation. In London, which is a major hub for international students in particular, some PBSA rooms can be as much as £650 a week, providing occupiers with quality, fully furnished and catered accommodation, inclusive of utilities, in sought after locations.

Hedging your bets

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As part of a diversified portfolio, many property investors are opting to invest in this type of accommodation, and this could be set to increase if the UK encounters further economic uncertainty, according to Dan Gandesha, founder of investment platform Property Partner.

“During tough economic cycles where it’s harder to secure a job, people are more likely to go to university and extend their studies,” Gandesha said. “That increases demand and while the number of places doesn’t spike, it does help underpin the demand for PBSA.”

He added: “Having those countercyclical characteristics is quite unusual for an investment class. It’s very different to commercial property.

“Residential property to some extent isn’t affected in the same way, but it doesn’t have the same attributes of PBSA, whereby the numbers and the demand go up [in a downturn].”

Student hotspot

Birmingham has seen a record rise in the amount of PBSA available over the past year, and is now home to 21,768 bed spaces for the 2017/2018 academic year, according to Cushman & Wakefield’s UK Student Accommodation Report. The University of Birmingham, Birmingham City University, Aston University, University College London and Newman University are all situated in the city, keeping demand for student accommodation high.

As the second-largest student city in the country after London, Birmingham has a student population of around 65,000. Although some landlords are still largely reluctant to let their properties out to students, attitudes towards this could be set to shift as investors look for higher yields, and Birmingham is a key location in this space to look out for in the future.

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