Excellion Capital has found that purpose-built student accommodation (PBSA), alongside Build to Rent, are two of the most desirable investment property types, according to their latest index.
Research revealed yields below 5% in these sectors, showing steady asset values and stable income.
Student accommodation provides the lowest yields, with the overall sector delivering an average yield of 4.3%. This marks an annual reduction of -0.25%.
Yields are lower for the prime London student accommodation market – sitting at an average of 4%, while the prime regional market gives 4.25%.
While low yields typically indicate a good, secure investment, some investors can see great success in taking on a certain amount of risk and snapping up high yield assets at what is usually a relatively cheap capital value per sq ft.
“For property investors, yields must be considered with real nuance.
“Low-yield assets are often considered as the most lender-friendly because they indicate a high asset value, steady and reliable income and, therefore, relatively low risk, however the lower the yield the lower the quantum of debt that can be supported by the asset.
“Lenders are most concerned with the long-term value of an asset rather than the income it generates, they’re going to be far more willing to lend at attractive rates — albeit lower leverage — for low-yield assets and be incredibly wary of the more unpredictable, erratic high-yield concerns of the market.
“It’s certainly a quirk of the real estate investment market that higher income relative to asset value is not always seen as a good thing.
“That being said, investors don’t have to reject high-yield options entirely.
“A high yielding asset is technically riskier than a lower yielding asset – all other things being equal – but, as Warren Buffet says, risk comes from not knowing what you’re doing.”
Robert Sadler, Vice President of Real Estate, Excellion Capital
