The buy to let sector continues to do well for landlords - but student accommodation is setting the benchmark for letting performance.
Despite monthly rents increasing by 2% during 2013, the average buy-to-let yield for a UK landlord sits at 6.1% gross, down 0.1% on 2012. But student accommodation thrashes this figure with sustainable and assured yields of 7 to 9% - net.
Peter McDermott, Director of UK-based Go Global Investments, said: “These latest figures from Countrywide Residential Lettings show that despite 'Generation Rent', where the number of people renting from a landlord has doubled to 8.5 million in 15 years, gross rental yields are sticking around the 6% mark.
"Once you factor in void periods, tax implications, maintenance costs and chasing unpaid rent, the financial appeal of being a buy-to-let landlord loses some of its gloss. This is why serious serial UK property investors are coming to us to discuss student housing where, for example at our Leeds project, they're assured a minimum 8.1% net for five years.”
Student accommodation is now perceived as an established mainstream asset class. With no cap on an ever-growing number of often affluent international students, demand is very high and returns just as attractive. The CBRE Student Accommodation Index showed returns of up to 9.95% in the 12 months to September 2013. That's higher than returns outlined by performance analysts Investment Property Databank (IPD) for office, industrial and retail property for the same period – and without factoring in capital growth as the UK housing market rises.
McDermott said: “An investment in student housing generates far fewer headaches than your average buy-to-let, largely because the entire process is hands-off. The professional management company finds the tenants, maintains the building and uses economies of scale to drive down running costs. All the investor has to do is watch regular rental returns appear in the bank account.”