Property development finance success for investment into Nottingham's student market

Finance: £925,000 | Location: Nottingham

With just over twenty years of experience investing in residential properties in the Nottingham area, a property investor sought to grow their portfolio by investing in a student accommodation scheme.

Nottingham commercial office space to be developed into student accommodation

Securing short-term finance for property development in the heart of Nottingham's lace market

This investor's opportunity was a regenerative property development project, turning a former mill that had already been converted into an open-plan commercial office space into student accommodation. The property development loan of £925,000 would enable them to fund both the property acquisition and development expenses.

The commercial property had an estimated value of £1,550,000, and with £700,000 towards the property purchase, fees, and SDLT tax, the total finance requirement was £925k (equating to a loan-to-value (LTV) ratio of 64%).

Growing number of opportunities in Nottingham

Nottingham has gained prominence amongst renters and landlords due to its growing economy, transport links, and attractive opportunities in student lets. 

High student population: Nottingham is the home to two world-class universities, the University of Nottingham and Nottingham Trent. With over 60,000 students on campus, and a significant international presence, the demand for student rentals is high. According to the Nottingham City Council, the market has a shortfall of around 5,500 student beds. 

High demand for student housing presents a lucrative opportunity for property investments due to high yields, low vacancy rates, and the prospect of post-graduation student retention.

Popularity of student accommodation: A 2023 report by Savills indicates that international students are 60% more likely to choose purpose-built student accommodation. The University of Nottingham alone has around 9,000 international students, making a substantial overseas student population for investors looking towards purpose-built student accommodation in Nottingham. 

Rental demand: With 80% of its population under the age of 40, and the 18–29 age group constituting 28%, surpassing the national average of 16%. This demographic trend presents opportunities for addressing the demand for rental accommodation.

Potential rental yield: The average rent for student accommodation in Nottingham is around £160 per week, representing a promising opportunity for high yields. 

Opportunity to enter the Nottingham student rental market

The property was an 1870s mill conversion in the heart of the city centre, previously used as a freehold multi-let office space. The commercial property has four floors and five onsite parking spaces. The site was the perfect location for students looking for a short commute to university (4 miles) and close proximity to the nightlife. 

Each floor had space to accommodate five bedrooms, with a shared communal area, kitchen and shared bathroom. At full capacity, the building would be able to house 20 students. With typical rental prices for students (per room) equating to around £600-700 a month, there is the potential for £3,500 a month per flat and a gross revenue of £17,500 a month for the whole building. 

The property required basic internal structural updates, including partitioning, corridors, bathrooms, bedrooms, and living areas on each floor. The budget for the fit-out was £675k in total.

Development finance allowed for the project to move forward, and upon completion, the investor repaid the loan with the proceeds from the other properties. 

Financial strategies for property development in Nottingham

Partnering with experienced development finance brokers offers numerous advantages and, more often than not, proves beneficial for potential borrowers. Brokers typically secure more favourable rates than direct negotiations with lenders. 

In the context of property development, they possess the expertise to approach the right lenders at the right time, helping realise clients' complex development schemes.

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