Why property in university towns are offering new investment opportunities

Something unusual happened at the start of this century. The first signs of the financial crisis were hitting the news, Barak Obama was campaigning to be US president and an unusually high number of babies were being born¹.

While the reason behind the highest surge in fertility rates since 1962 continues to be questioned, many now agree that the likely impact on the UK property market could be significant.

“The small scale baby-boom of 2008 is good news for property investors in university towns, as 2030 student figures are expected to increase by over 20%²,” says Syed Raza, Managing Director, Global Banking and Credit Solutions at Barclays Private Bank.

“As student numbers swell, demand for property close to universities rises, in turn increasing rental yields and property values,” he adds.

Further to this expected increase in demand for property in university towns, local property markets close to universities are also often impacted less by cyclical downswings than the wider market, making them an attractive investment option at this late stage of the economic cycle.

British education’s prevailing popularity

UK universities are among the best in the world and consistently perform well in global rankings. In the 2019 Times Higher Education ‘World University Rankings’, Oxford University was ranked top, followed by Cambridge and then Stanford in the US³.

As many as 2.34 million students attended UK higher education institutions in 2017-2018, according to the Higher Education Statistics Agency⁴  (HESA).

Even after tuition fees were significantly raised in 2012, full-time higher education student numbers remained resilient, with HESA reporting total students in higher education at 2.49 million⁵ in 2011-2012 just before the fee hike and 2.34 million⁶ in 2012-2013.

Large domestic demand for university places is also underpinned by demand from international students. The UK is the second most popular study destination in the world⁷ with international students attracted not only by the reputation of recognised universities but also the experience of living and studying in the UK.

Recent announcements by the Home Office, encouraging international students to stay in the UK for two years after graduation before finding employment, is also likely to drive an increase in the numbers of students choosing to study in the UK⁸.

Where to invest?

With student numbers expected to increase in the upcoming years so will the demand for property in university towns, offering attractive opportunities for property investors who invest in the right locations.

In 2019, eight of the top ten gross rental yields by UK postcode were in the key university towns of Leeds, Newcastle, Nottingham and Sheffield.  For example, Nottingham’s NG1 postcode came in at 11.99% and Liverpool’s L7 postcode at 9.79%⁹, compared to a national average of 4.5%¹⁰.

“Investors looking to maximize rental yield should look for University locations with cheaper property prices’’ according to Mike Holden, Managing Director of Landmark Valuation Services.

However, rental yields in some university locations where property prices are traditionally not considered cheaper can still outperform the national average. For example, 2020 gross rental yields for properties close to Oxford and Cambridge Universities (postcodes CB1 and OX1) reported at 4.1%¹¹ and 4.2%¹², respectively.

Jo Eccles, Founder and Managing Director of SP Property Group, explains how considering “areas with a thriving economy, good employment prospects without too much supply, such as Bristol’’ may be beneficial.

‘‘Property buyers in such locations can benefit from diversified local demographics, which includes a student population but also prospects for people to stay and raise families in the area,’’ Eccles explains.

Time to invest in a university town?

Climbing rents, increasing domestic student numbers and the strong reputation of British universities attracting international students may suggest that those investing in property in university towns have reason to be optimistic.

Now may also be a good time for international buyers considering investing in the UK property market. Slower property price growth in recent years (1.4% in 2019)¹³, combined with the pounds fall in value relative to major international currencies since the EU referendum in 2016 makes investing in the UK property market more affordable.

Barclays Private Bank can support property investors looking to take advantage of higher rental yields outside of the capital. We offer mortgages or the option to raise liquidity using securities-backed lending.

Please contact your Private Banker to discuss financing solutions or read more on our banking and credit solutions page.

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