Big players buying up student houses as style boosts profit
Developers who targeted the student market with swanky new tower blocks confidently predicted the death of traditional lets. They were wrong. While freshers and foreign students are happy to rent them, playing house with your friends is all part of the fun of being at university and second and third years still want that experience. It’s just that now they demand more, much more. They want great wi-fi, stylish décor, an abundance of bathrooms, comfy mattresses and American fridge freezers.
Their struggle to find this in old HMOs (house in multiple occupation) has revealed a huge gap in the market that is now being filled by big players who are building nationwide businesses out of student houses.
“It was the Cinderella sector, the one everyone had forgotten about when all the talk was about purpose-built accommodation,” says Andrew Wells, partner in charge of the Leeds office of Allsop, the property consultancy and auction house.
“Its potential has now been spotted. Before, student HMO owners were typically local landlords but now there are about seven or eight companies operating nationwide buying student houses. They are refurbishing them to a high standard, putting in more en-suites and undertaking comprehensive redecoration between lettings. This and a good service means that they can charge premium rents.”
A room in a standard student house is between £75 and £80 a week, while the upgraded properties command £95 to £110.
The high rental yields are the main attraction for big investors. Allsop say that yields can be as high as 12 to 13 per cent gross or 10-11 per cent net in towns and cities with universities at the lower end of the league table. In higher ranking university towns and cities, gross yields are typically seven to nine per cent gross, equating to net yields of approximately five to seven per cent.
“People who see the student HMO sector the same way they did 40 years ago are missing today’s reality and the opportunity. The HMO market is worth about £20 billion with the demand for student accommodation expected to grow. In contrast, supply is limited,” says Andrew Wells, who adds that a huge amount of equity is going into student houses in Leeds, Sheffield and Hull.
Hull-based Kexgill is Britain’s largest private owner of student townhouses in the UK. It was launched in 1978 by Hull university lecturer Dr Mike Lee and has 900 properties.
It has responded to the changing wants and needs of today’s second and third year students by upgrading its existing stock and completely refurbishing new buys, including entire streets in Hull.
The MD of the family-owned company, Richard Stott, says: “Students want the best internet connection, en-suites, good quality fixtures and fittings and excellent wi-fi but our main request is for American-style fridge freezers. We put them in our properties and they aren’t full of beer, they’re full of veg. Students are cooking mor , which might have something to do with Jamie Oliver.”
He adds that one of the biggest benefits of a good corporate approach is the service: “We have staff in every city, we manage our own lettings, we have apps that allow you to report your repairs and we have a 24-hour call out system. Unlike a private landlord, we won’t be on holiday when you call.”
Charlie Vaughan-Lee, 35, has also found that an injection of “cool” maximises appeal. He has cornered the market in it after launching his company, Student Cribs, while studying chemistry at Bristol University. He started small in 2003 when he sourced, purchased and modernised student houses for individual investors. It was a sideline until seven years ago when he created his first investment fund, which allowed him to expand. His latest fund
raised £200m and is allowing him to add another 500 properties to his portfolio of 180. He buys around Russell Group universities, including Leeds and York, and in places with potential, such as Salford and Huddersfield.
His USP is turning existing HMOs into “Cribs”, which are treated to one of four ultra-fashionable interior design schemes: Industrial, Vintage, Contemporary and Reclaimed. This allows him to charge a £10 to £15 premium per room.
“The idea is that they look cool. We paint the walls in design-led colours and have furnishings that will wear in rather than wear out, as opposed to magnolia walls and broken Ikea furniture,” says Charlie, who adds that it’s not all top
show. “What students also want is good wi-fi and good service and we offer that too.”