Landlords of student accommodation have encountered a challenging 18 months, facing a slump in tenant demand and falling yields as students were compelled to stay at home and learn remotely or even defer entry to university.
The intense competition that investors experienced from large property companies was compounded by a lack of overseas students, resulting in a drop in profit margins after revenue from student lets fell by 30pc last year. Yet the situation now looks considerably brighter: A-level results have been released this week and a new term beckons. Significantly, students are expected to return in person to universities.
Yet not all university towns offer equal investment opportunities. Using data from the past two years, research by lender Paragon Bank has identified the locations most likely to return the best yields for landlords.
The student city which returned the best rental yields was Swansea in South Wales. Landlords there receive average rents of £18,178, while the average property costs around £195,000, producing a yield potential of 9.3pc. The coastal city is home to Swansea University, which has more than 20,000 students.
Cheap house prices in the city of Hull have also pushed up rental yields close to double figures for landlords of student lets. The average student house in the area costs just under £120,000, enabling investors to enjoy yields of 8.2pc due to average rental income of more than £9,700 per annum.
Higher yields in smaller towns and cities
Richard Rowntree, of the lender Paragon, believes that smaller towns are often the best investment, because there is less competition among investors. When it comes to student property investment, he says, targeting the major cities doesn’t always provide the best returns.
Smaller towns and cities typically have less purpose-built student accommodation and more traditional options, such as houses in multiple occupation, which when combined with cheaper house prices can produce better returns, he adds.
Student lets in Preston, Stoke and Plymouth have returned average yields between 7.6pc and 8.1pc, with landlords in Preston earning on average in excess of £19,000 per annum per property.
Rental properties are highly sought after across Liverpool, a city with a student population of more than 54,000, split between the University of Liverpool and John Moores University. Landlords there have earned an average annual income of £14,465 while the average student property costs almost £197,000, representing a yield of 7.3pc.
Since the beginning of the year, student rents in most areas of the UK have risen steadily and demand from tenants has soared. Activity has also gathered pace in the wider rental market in recent months.
Average void period shortest since 2019
In July, usually a busy month for lettings, the average monthly cost of an entire rental property in England jumped by 10pc to hit more than £1,060, according to retail platform Goodlord.
Tom Mundy, of the platform, says last month was one of the busiest months for the lettings market. Agents are telling him that available rental stock is being snapped up extremely quickly. Overall, he says, rental prices are higher in most regions than they were this time last year, which indicates a market operating with more confidence. Students are also optimistic that their next year will be spent in their university towns and cities, Mr Mundy added.
This could in part be the result of many universities increasing the number of available places, in order to increase revenue from student fees. It could also be due to the exam fiasco last summer, when more students received higher grades than expected owing to the absence of exams during the pandemic.
The average void period, when a property sits empty, was 14 days in England last month, the shortest recorded by Goodlord since August 2019.