Student accommodation: protecting your investment amid changing market dynamics

As a new academic year begins for UK universities, many students will have recently moved into their halls, apartments or houses for the year ahead.

Students coming from abroad to study in the UK remains ever popular, with demand on UK education continuing to increase. As a result, there is an increasing requirement for, not only more student developments, but also accommodation that meets modern needs.

Student accommodation is no longer considered an alternative asset class but is core to most investment portfolios. Getting the investment right and ensuring that an investor’s income is protected is essential with the increased regulatory environment and government scrutiny on lettings.

In this blog, we will explore why student accommodation is one of the best-performing sectors operationally whilst delving into the critical legal considerations involved. 

The resilience of student accommodation in the face of fluctuating market conditions is evident, with recent news shedding light on its remarkable growth and potential appeal to investors:

• During Q2 2023, Purpose-Built Student Accommodation (PBSA) investment volumes surged sevenfold compared to the previous quarter, with two major deals accounting for a significant portion of the total investment.
• During this period, there was a rise in average deal size, reflecting consistent and substantial investment in student accommodation projects.
• The supply shortage and growing student numbers have led to robust rental performance, with forecasts projecting over 7% growth in 2023/24.
• Projections that the UK could reach one million university applicants by 2030 (which includes the anticipation of 700,000 more international students) underscore the encouraging prospects for the student accommodation sector.
• In 2022, student accommodation accounted for 45% of all residential deals, signalling its prominence and popularity among investors.

These developments highlight the confidence in this market, further evidenced by the indication that 75% of investors plan to significantly increase their total investment in student accommodation over the next five years.

Whilst acknowledging why the sector continues to grow in appeal, we recognise the importance of its stability and potential as a prudent and attractive investment option. Legal expertise is critical for investors to navigate regulatory changes, protect their interests, and ensure a successful investment within the student accommodation sector.

Key legal factors at play:

1. Tenancy Agreements and Nomination Agreements: Students’ expectations and rights concerning accommodation continue to grow, creating opportunities in the market. Investors must be aware of these changes and best practices to meet students’ evolving needs. Strong legal contracts outlining rights and responsibilities reduce the risk of conflicts and establish a solid foundation for investment, benefitting both investors and tenants. Access to experienced legal professionals facilitates effective resolution, protecting investors’ interests and ensuring compliance with legal obligations.
2. Regulatory Compliance: Compliance with safety, quality, and suitability regulations is vital for the stability of the student accommodation market. It is worth being aware of the Building Safety Act 2023 (BSA) and its latest updates that came into force on 1 October. Other notable changes to keep track of are how local planning policies and housing regulations influence the student accommodation market. Staying informed about these legal developments allows investors to adapt their strategies and make well-informed decisions in this evolving sector.
3. Risk Mitigation: Legal expertise is vital in assessing and mitigating risks associated with student accommodation investments. Lawyers can help navigate complex legal issues, such as zoning and planning regulations, ensuring compliance and minimising potential legal hurdles. 

The student accommodation sector’s promising growth lies in understanding evolving student rights, being attentive to legislative changes, and leveraging legal expertise for compliance and risk management. You can position yourself for success in this dynamic and evolving market by proactively addressing these legal factors. 

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