Students seek landlords

The shortage of housing for students can now benefit small investors, Chris Partridge says

The government's ambition to attract half of all school leavers into degree courses has prompted massive expansion plans at universities - and the fact that they will need to be housed has not gone unnoticed by developers.

The government's ambition to attract half of all school leavers into degree courses has prompted massive expansion plans at universities - and the fact that they will need to be housed has not gone unnoticed by developers.

Until now, only large universities have had the wherewithal to invest in halls of residence, (which can make money despite low student rents because of the economies of scale - cleaning services, for example, are contracted out to minimise costs). But now, with the increasing student population, other types of accommodation are required. Buy-to-let investors are a popular solution and building firms are responding to this fact. Until now halls of residence were strictly the preserve of institutional investors but this month sees the launch of two new halls of residence built by private developers containing apartments for sale to small investors.

In Lincoln, just opposite the university, Bournston, the developer, has built a 99-unit block of student apartments with shops on the ground floor, called The Junxion. And in Preston, the Warehouse Apartments close to the University of Central Lancashire contains 47 units. Flats in both blocks are being sold to buy-to-let landlords.

Both universities have major expansion plans. Central Lancashire is already huge, with 34,000 students, and aims to grow to 50,000 by 2010. Lincoln is a relative minnow at 8,000 students but it also plans to expand. The new students all have to be housed somewhere, and very few universities have the accommodation or the resources to build the necessary room space themselves so... enter the private sector.

Simon Scott, the head of student and affordable accommodation at FPDSavills - which is the agent selling the flats in Lincoln to buy-to-let investors - says the attractions of student accommodation for small investors is the security of annual lets with a short, predictable void in the summer that can be used for maintenance. "The investor buys a flat with a cluster of four to six bedrooms round a shared living space and kitchen," he explains. "Each unit is let on a 48-week agreement, so there is not that long a void and that is used for maintenance and deep cleaning," Scott says.

The block is run by a management company and students are contacted through the university. Because Lincoln is growing fast, there should be no shortage of tenants. "The university has got massive expansion plans, and the block is opposite the student union and the library," he says. "We have got an excellent working relationship with the university."

The 48-week tenancy is proving to be surprisingly popular with students, who might have been expected to leave the environs of their university as soon as the summer term ends to travel and not return until September. "We find that many students are staying on in the vacations because it is their first stroke of independence and also work is available," Scott says. In the longer term, it will be possible for the block to change use if necessary.

Prices at The Junxion range from £160,000 to £275,000 and the student rent is £67.50 a week, giving a projected gross return of 8 per cent and a net return of 6 per cent after service charges.

The Warehouse Apartments in Preston are let on a rather shorter period, 42 weeks, but buyers will have a full complement of tenants when they complete the purchase, which is always reassuring. They range in price from £163,000 to £330,000 and rents start at £62.90 per week giving a yield of 6.5 per cent.

Mary-Jo Pearson, the investment sales manager at Knight Frank in Leeds, who is handling the sales, says: "All the apartments are pre-let, so they are sold with tenants who are all first years returning in September. Some are let for 52 weeks and we are incentivising students to take up the extra 10 weeks." The 47 apartments at The Warehouse contain four or six study bedrooms with ensuites, and there are a few seven-bedroom duplexes at the top. Kitchen and living room - which comes with a television and sofas - are shared. "All they need is linen and pots and pans," Pearson says.

FPDSavills: 020-7535 2962; www.fpdsavills.com and Knight Frank: 0113 297 9040; www.knightfrank.com