By Julian Ramsden, Director | 29 April 2016
Knight Frank’s property research team released an annual report on specialist property. It aggregates and analyses market data for 2015 and makes predictions for the rest of 2016.
There are several trends that buy to let investors should be aware of.
Investment is on the rise
Specialist property includes student accommodation, hotels, automotive and healthcare. It is classified this way to separate it from the core property types like standard residential, commercial, industrial and retail.
According to Knight Frank’s data, 2015 was a record year for the specialist property market.
- £13 billion was invested directly in specialist property assets during 2015
- This was 60.6% higher than 2014
- In 2015, all four types of specialist property exceeded their five-year and 10-year averages
- Hotels and student property hit new records
The climate will continue to benefit investors
Many of the market drivers Knight Frank discusses won’t change in the short to medium term. Robust demand, low-risk profiles and inflation-proof rents mean these markets will continue to attract investors.
They forecast that investment in specialist property will reach £14.3 billion in 2016, a 10% increase in 2015.
Student accommodation is out-classing other investment types
Let’s take a more detailed look at student accommodation because this is an asset class driving returns for so many individual buy-to-let investors.
Knight Frank found that rents grew by 3.7% in 2015 and that investors will see a further 3.5% increase during 2016.
In reality, we see investors doing better than this.
These figures aggregate the entire sector, and (as Knight Frank does point out), there’s a big gap between what you earn in different cities. This reflects the pattern of demand across the country – certain universities are growing faster than others, and have a larger percentage of students from overseas or other areas of the UK. These universities have a higher demand for purpose-built student accommodation (PBSA).
The right opportunities – for example in Liverpool, Sheffield, Birmingham and Nottingham – will give you a return far and above what you can achieve with other asset classes. Plus, many of these opportunities offer developer buy-back options, which means you have a guaranteed exit strategy.
Here’s an example.
A development in Liverpool city centre (serving three different universities) is offering 8% assured net rental income for five years. It is managed by a reputable company, meaning it’s easy and hands-off. There is also a developer buy-back option in year five.
Even with the policy changes dominating media headlines, these types of opportunity offer you a strong prospect for secure, medium to long-term growth.
To learn more about student property investment, read this article with key points for investors.