Investing in student accommodation has long been considered a savvy move. However, recent findings suggest that setting your sights on smaller university towns could lead to even better returns.
Surging Rental Yields in Student Accommodation
The student housing market is showing promising signs, especially for landlords venturing into smaller university towns and cities. Paragon Bank’s recent analysis reveals an interesting trend: the average rental yield for buy-to-let properties in sought-after student areas climbed from 5.63% in September 2020 to an impressive 6.66% in August 2023.
But here’s where it gets more intriguing. The highest yields were not in the big, bustling student hubs, but rather in places like Stoke-on-Trent, with landlords there seeing returns of 9.42%. Hot on Stoke’s heels were Swansea and Glasgow, with yields of 9.22% and 8.08%, respectively.
This comprehensive study wasn’t a casual observation. It was grounded in data from the Office for National Statistics (ONS), the Universities and Colleges Admissions Service (UCAS), and insights gleaned from mortgage applications within student postcodes.
Behind the Numbers: What’s Driving These High Yields?
Richard Rowntree, Paragon Bank’s managing director of mortgages, shed light on the upward trajectory of yields in the student market, a trend that’s clearly been building momentum over the past few years.
He attributed this growth to a surge in tenant demand throughout the private rented sector, amplified by an unprecedented spike in university applications. However, Rowntree made a critical observation: “It is often properties found in smaller towns and cities that deliver the best returns for landlords.”
But why is this the case? These locations, though not drawing the most substantial student numbers, boast more affordable property options. They’re not oversaturated with purpose-built student accommodations (PBSAs), which are more prevalent in larger cities like London, Birmingham, and Manchester, and can drive competition and prices up.
Spotlight on High-Yield Towns: Stoke-on-Trent, Swansea, and Glasgow
Let’s delve into specifics. Stoke-on-Trent, with a modest population of 258,400 and home to Staffordshire University and its some 15,000 students, offers an average property value in student postcodes of £145,813. In return, landlords can expect an average annual rental income of £13,730.
Swansea tells a similar story. Despite its population of 246,500 and hosting two universities with over 25,000 students, the average property value stands at £202,750, with rental income hitting around £18,695 annually.
Then there’s Glasgow, the only large city to break into the top 10 for student rental yields, despite its population exceeding half a million. With four universities, the average property value is £211,729, but landlords can anticipate an average annual rental income of £17,109.
Why Smaller Could Mean Bigger Returns
The common thread among these areas? They combine the presence of universities (hence, a steady stream of student tenants) with lower property prices, and they don’t have the fierce competition that comes with an abundance of PBSAs. This formula seems to be the secret sauce for higher rental yields.
So, for prospective landlords, the message is clear: don’t just chase the big cities with their big universities. Sometimes, the real investment treasures lie in the smaller, less obvious places. By focusing there, you just might unlock returns that others are missing.