As university students demand higher living standards, property developers are increasingly focusing on luxury student accommodation. These students no longer accept the traditional cramped and dilapidated digs, instead seeking amenities like gyms and parking. The potential returns for investors are enticing, but is this sector worth the plunge?

Integritas Property Group, a Liverpool-based property developer with operations in the Middle East, offers average returns of up to 8% in purpose-built student accommodation. Their developments boast amenities such as gyms, parking, and even cinema rooms, all located near universities. Integritas Property Group is among many developers promoting buy-to-let investments in student housing, as private landlords exit the sector due to stricter regulations and higher tenant expectations. According to Hamptons estate agency, listings for student housing by private landlords have dropped 45% since 2019, with significant declines in Medway, Kent (85%), and cities like Sheffield, Dundee, and Salford (over 70%).

Despite the exit of private landlords, demand for student accommodation is soaring, driven by a growing number of overseas students willing to pay premium rents. The Higher Education Statistics Agency reported 2.18 million domestic students in the 2021-22 academic year, a 15% increase over five years. During the same period, non-EU students surged by 79% to nearly 560,000, while EU student numbers dropped by 13% to about 120,000.

In 2022, a record 767,000 students applied through the Universities and Colleges Admissions Service (UCAS), which forecasts a million applicants by the end of the decade. According to StuRents, a student accommodation analyst, the shortfall in student housing is driving rents up by about 10% annually, with an estimated deficit of 490,000 beds by 2026. Both universities and developers are racing to meet this demand, but investing in this sector carries significant risks.

Changing Student Preferences

Today's students, accustomed to borrowing heavily to cover tuition fees, are increasingly unwilling to compromise on accommodation quality. A survey of 20,000 students by estate agency Knight Frank and UCAS highlights the renewed interest in the "quality and impact of the accommodation experience." The survey found that the average annual cost of private purpose-built student accommodation is £7,865, compared to £6,160 for university-operated housing and £6,860 for private house shares.

In summary, while the luxury student accommodation market promises high returns, potential investors must carefully weigh the growing demand against the risks involved.

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