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How to beat a property downturn with returns of 11.8% per annum
Property Partner
Property Partner's Gandesha says student blocks is attractive to investors because it is counter-cyclical, meaning it would be well-positioned to weather the storm of an economic downturn.
Between 2012 and 2016, student accommodation returned a total of 11.8% per annum.
LONDON — What goes up when everything else comes down?
In the property market, investors think they've found an answer. Keen to hedge their bets, growing numbers of investors are turning to the property class which sees demand rise during a financial downturn — purpose-built student accommodation.
The logic is simple, according to Dan Gandesha, who has crowdfunded £9.6 million worth of PBSA blocks on Property Partner, the investment platform he founded.
"During tough economic cycles where it's harder to secure a job, people are more likely to go to university and extend their studies," he told Business Insider. "That increases demand and while the number of places doesn't spike, it does help underpin the demand for PBSA."
After the financial crisis of 2008, rental values in the wider commercial property market were in steep decline. Rental growth in PBSA, however, grew between 3% and 4% that year, according to data from Lasalle Investment Management.
"Having those countercyclical characteristics is quite unusual for an investment class. It's very different to commercial property.
"Residential property to some extent isn't affected in the same way, but it doesn't have the same attributes of PBSA, whereby the numbers and the demand go up [in a downturn]."
Does that mean Gandesha is worried about a downturn? "I don't think any of us can be complacent about the current environment. We don't know how the referendum or the Brexit deal will play out, we don't know what the impact will be on the economy," he said.
"I don't think people expect an economic crash, but equally we live in uncertain enough times that an asset class that gives you a defensive portion of your portfolio is attractive."
Everything you need to know about the hottest property sector in the UK
PBSA describes the high-spec student digs popping up around the country.
Rooms are typically more expensive than traditional student accommodation — some in London cost up to £650 a week — and they come fully-furnished, with utilities and catering covered by the up-front cost.
Institutional investors are pouring money into the sector, drawn by the high returns, strong demand, and capital growth.
Between 2012 and 2016, student accommodation returned a total of 11.8% per annum.
By contrast, the wider commercial property sector returned 7.4%, and residential property returned 7.8%.
Values in London are eye-watering: UBS last year paid £31 million for a 184-bedroom student accommodation block which valued each bedroom at £171,000.
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