Viewpoint – V for Victory with UK Student Accommodation
Our Head of United Kingdom and student accommodation specialist John Yeend shares his thoughts on the UK student accommodation sector, how universities are adapting to COVID-19 and how demographics are key to understanding the resilience and opportunity that the purpose-built student accommodation (PBSA) sector provides.
A Maturing Sector:
Since the removal of the cap on university student numbers in 2015, full-time student numbers have been growing at close to 50,000 per annum; over the same period, the provision of new beds has lagged behind, averaging c. 35,000 per annum, so the demand versus supply imbalance has been getting worse. Nationally, only a third of full-time students have access to PBSA.
Much of this growth in full-time students has been domestic, with a 10% increase between 2014/15 and 2018/19, despite a demographic drop in 18-year olds, and for the forthcoming 2020/21 academic year a record 40.5% of all UK 18-year olds applied to attend university.
International students, particularly those from outside of Europe, have been growing strongly and represented 24% of the full-time student population for the 2018/19 academic year. UK Government has a target to significantly increase the number of international students by 31% by 2030.
These trends have delivered long-term strength to PBSA, evidenced by rental increases of en-suite accommodation tracking 16% above the rate of inflation since 2014 (Cushman & Wakefield).
Working with COVID-19:
Schools and universities have been adapting to the COVID-19 pandemic. While A-Level exams have been cancelled, grades will be based on performance in mock exams, coursework and attainment at previous education levels. This will allow A-Level Results Day to go ahead as planned on 13th August and for domestic students to then confirm which university they will be attending.
Almost all universities will be open in some capacity come September, confirmed by Universities UK, the representative organisation for the UK’s 137 universities, who surveyed 92 universities about their plans, with 97% confirming they will provide in-person teaching in line with government and public health guidance, with ‘blended learning’ expected – a combination of digital and small face-to-face classes that observe social distancing measures.
In terms of housing, private PBSA operators are also making preparations in a similar way to retailers, with physical adaptations such as protective screens in reception areas, hand sanitisation points, enhanced cleaning regimes and signage to remind students about the new measures and adjusted communal spaces.
The operators have reported no discernible shift in demand for different unit types. Studios continue to be popular with international and postgraduate students, with little change in demand for shared flats. Indeed, a shared flat is considered a “household” therefore social distancing rules do not apply within it, providing students the opportunity to socialise with a small group of other students.
In short, everyone’s will is to get students back to university, including the students themselves, most of whom have found the online teaching of the last term disappointing, particularly when full tuition fees are still due.
Evidence supports this, with UCAS reporting at the end of June that there were 500,340 applicants holding a firm offer to start a course this autumn, 1% more than last year and fewer people accepting an offer for a deferred place. Of those holding an offer for 2020, there has been a 2,200 increase in UK students, offsetting a 2,160 drop from Continental Europe, whilst overseas (non-UK, non-EU) had increased by 5,770 (+12%).
Meanwhile, within 90 North’s own PBSA portfolio we have seen the level of pre-let’s rise more than 10% over the last two months, mainly driven by overseas students.
V Shaped Recovery of Domestic Demographics:
While the continuing strong growth of overseas students is positive to see, domestic demographics provide very strong support for the sector in the coming years. The growth of domestic full-time students in recent years has been against a back-drop of falling numbers of UK 18-year olds.
There is a clear V shape to the increase in 18-year olds in the coming years, with a steeper recovery than the decline of the last 10 years and a projected 11% increase by 2024 and 18% by 2029.
90 North’s PBSA Under Management:
We currently manage 3,000 beds across the United Kingdom and have strong pre-lettings for the next academic year across the portfolio, including almost half the properties already 80%+ let for next year. We recently added newly built schemes in the core student cities of Edinburgh and Leicester. Highlighting the growth in STEM subjects, our most recent PBSA acquisition at Goods Corner Edinburgh serves the nearby University of Edinburgh Kings Buildings Campus, home to 8,000 students and the College of Science and Engineering. It is 100% pre-let for year 20/21.
New University of Edinburgh School of Engineering Module 1 building
Opportunity in the PBSA Market:
90 North invests in high-ranked and high-tariff university cities with a balanced housing supply. With diligent stock-picking and prudent structuring, we believe there will be opportunities for investors to access core PBSA assets for long term investment in the UK over the next 3 to 6 months. As well as buying operational properties, well-located developments can offer attractive risk-adjusted returns, providing bespoke accommodation for the modern student.