Maximizing Student Property Rental Yield in 2024

With more students pursuing higher education in global study destinations, the demand for student accommodation has increased rapidly. Every property investor wants to attain high returns on their investments, and most are advancing toward the student housing market for the same. Student property rental yields are usually higher than any other asset class worldwide, owing to high demand and low supply in popular student regions.

The rising student population presents an opportunity for investors to capitalise on this highly lucrative industry and generate high rental income. This blog explores student property rental yield, the formulae for calculating it, and the factors influencing the high return in this market.

Overview of Student Property Rental Yield

Student properties across the UK offer an average rental yield of 6.15-6.6% compared to other residential properties providing up to 5.6% (Paragon Bank). This trend will continue in the coming years due to stable demand and strong rental returns in this sector.

For investors to get a detailed view of the global student housing market, they must conduct in-depth market research before entering this industry.

Following are some of the major reasons why student properties are the most preferred and profitable market to invest in:

1. Stable demand: The full-time student-to-bed ratio in the UK is 2.7:1, highlighting the under-supply of beds in the region, according to ICEF Monitor. UK requires approximately 230,000 additional student housing beds to address current demand. This high-demand market promises high rental value and returns to investors.
2. High occupancy rate: Student rental occupancy rates are generally higher than residential markets. According to CBRE, the PBSA sector recorded an all-time high rate of occupancy of 98% in 2023 and expected to be higher in 2024. This trend attracts property investors, as high occupancy rates are a sign of market stability and profitability. Furthermore, increasing demand and low vacancy rate, make it a safe choice for investments.
3. Multiple tenancies:  Unlike residential properties, landlords typically lease student apartments on a per-room basis. These properties allow multiple tenants to occupy the same property at the same time. The landlords can generate maximum income by charging as per the room type and amenities, thereby increasing the overall return.
4. Flexible tenancy: Student apartments generally provide flexible lease periods like one academic year. This allows them to adjust rent according to market conditions and increase rental value. Property owners should upgrade the living space as per student's needs to maximise rental income.
5. Recession-proof market: The student accommodation market is generally driven by academic calendars and enrolment numbers. Despite economic challenges, the market tends to remain stable, offering a reliable investment opportunity. This helps investors to predict income more accurately and plan.

Formulae to Calculate Student Property Rental Yield

Student property rental yield refers to the return on investment (ROI) generated from renting properties to students. Investors calculate it to analyse the income-generating potential of the property relative to its cost. It also helps them make an informed decision about the properties that offer low rental value and less return.

‍

Formulae:

• Annual rental income: The total rental income earned from the property over a year.
• Operating expenses: The total expenses incurred while operating the property in a year, including maintenance, management fees, property taxes, insurance, utilities, etc.
• Property value: The total market value or purchase price of the property.

5 Factors Influencing Student Property Rental Yield

In the student housing market, several factors influence the rental yield of the property. Investors should consider these factors to optimise returns and earn well within the student housing market. Let's delve into the key factors shaping student property rental yield.

1. Location

Location plays a significant role in impacting student property rental yield. Properties near universities, educational institutions and public transportation, tend to give higher returns. This is mainly because most students prefer to live near universities.

Due to the increasing number of international students enrolling for higher studies, these properties are always in demand and often offer high rental value. On the other hand, property far from the university and public transport is more likely to have a high vacancy rate, resulting in low income. Therefore, property investors need to do thorough research before entering this market.

2. Property Type

The type of property, whether it’s purpose-built student accommodation, shared apartments, or studios, significantly influences the rental yield. A wide range of students consider PBSA as their top choice due to high-quality living experiences. Thus, students are willing to pay high rent, resulting in high incomes for investors.

Studio and shared apartments are comparatively cheaper and are mostly preferred by postgraduates. These type of properties generally offers lower returns and at times observe low occupancy rates compared to PBSA. Therefore, investors need to carefully evaluate the type of properties before investing to get the desired results.

3. Market Trends

Market trends and economic factors such as the supply-demand gap, interest rates, and local market trends influence student property rental yield. If the rental market is in high demand with limited supply, it offers a high return on properties.

However, an oversupplied market may have the opposite effect. Similarly, changes in demographics, enrolment numbers and housing regulations impact returns in this niche. Investors need to be aware of the market updates to operate effectively.

4. Quality of Offerings

The quality and condition of the property play a major role in determining its rental yield when investing in the student housing market. Well-maintained properties with modern amenities and top-notch facilities attract more tenants. Landlords who invest in maintaining and upgrading properties with time are more likely to capture high returns.

On the other hand, properties with poor conditions and a lack of amenities may struggle to attract students, ultimately resulting in low rental value. Property operators must ensure the properties are well-maintained and have all the amenities preferred by tenants. As tenants prefer such properties in popular cities, it creates opportunities for investors in these areas.

5. Seasonal Variations

Seasonal fluctuations can directly affect student property rental yield, as demand changes throughout the year. Vacancies are generally higher at the start of the academic year as students seek apartments near universities or colleges. During this period landlords often charge high rents due to the increased demand.

However, during the time of holidays or summer breaks, the demand usually declines. As a result, landlords may face increased vacancies and reduced income during these off-peak periods. Therefore, investors need to plan effectively to get the most returns during the peak season by implementing dynamic pricing strategies.

Maximising Rental Value and Occupancy Rates

Investing in student housing properties may offer promising opportunities to earn a good return on investment. However, it is important to navigate the factors impacting student property rental yields carefully. Investors need to conduct a detailed analysis of the market, stay informed about booking trends, understand student preferences, and evaluate the property to maximise returns and increase occupancy rates.

Furthermore, amber offers various strategies, including dynamic pricing to help property operators get good returns. Access these strategies by listing with amber.