The UK student housing market is often described as mature with consensus at the recent LD Property Student Housing event that it is in its early thirties.
More than 300 professionals met for the event which showcased the increasing level of sophistication in the UK market. From the traditional, university owned halls to the swanky high-spec towers that Nido builds (for which they won the Resi award for best student housing operator) and even the market for shared housing becoming more professional and service oriented, there really is a student bed for everyone.
The story of student accommodation in the UK is one of tremendous growth. The market showed great resilience in turbulent economic times, and even major policy decisions like the overhaul in the UK academic funding structure (students now pay £9,000 in tuition per year) has hardly impacted the overall sector performance. This has attracted the interest of student accommodation investors worldwide. The total investment volume in the UK alone exceeded £2bn in the past two years and is expected to do the same in 2014. The sector is reporting strong yields and bookings for the coming academic year are ahead of last year’s bookings at this time.
Student accommodation is now firmly on investors’ minds. A survey by JLL showed that over 70% of interviewed investors planned to increase their exposure in student accommodation.
The market has become more professional and more specialised. James Pullan (Knight Frank) specifically pointed out a move from development to investment and a rise in third party operators of student properties, making the operation costs immediately transparent. Universities are changing as well, focusing more on the student experience in a holistic way, and finding the right accommodation partners to fit their students’ needs. Catherine Anderson of the University of Liverpool commented on the different ways in which she partners with accommodation providers.
Growth is not universal
But there are some challenges on the horizon. The general growth in domestic and international student numbers does not mean universal growth. Some universities are more successful in attracting students than others, presenting a risk to accommodation operators relying on these less successful universities. The patterns of international students are changing as well. In 2012/2013 the number of international students in the UK dropped for the first time in 29 years, with applications from India down 26%. It shows the sector’s exposure to policy decisions regarding immigration and tuition.
Another challenge for the UK is the limited availability of good sites and competition with other types of development. The current success of the residential market often means that local councils prefer residential developments over student housing. This is especially apparent in London, where only two boroughs are currently accepting planning applications for student housing development. The pipeline is drying up quickly, dropping from 5,259 units delivered in 2012, to 3,728 in 2014 to a current projected pipeline of only 417 units to be delivered in 2016. These figures are all below the growth of student numbers for the city, meaning increasing issues with affordability London’s growth as a study destination.
Europe: the next frontier?
Does a growing investment appetite in student accommodation and an increasingly competitive domestic market for the UK mean investment is flowing into other European markets? Well, not quite yet, according to Marcus Roberts (Savills): “Investments in Western European student housing markets are still only a fraction of those in the UK, despite the market being many times bigger”. The opportunities in the European market are there, with international student numbers set to double in the next ten years, the number of English language courses exploding and the education sector quickly harmonising under the Bologna treaty. But the challenges in the market remain, especially with regards to planning, politics, regulations and variations in student culture.
Momentum is gathering. The Class of 2020, a platform for student housing professionals across Europe, is seeing increasing interest. Crosslane, its latest member, has announced plans for 15,000 student beds across Europe in the next five years. Bouwfonds, another member, has recently announced several acquisitions throughout Europe. Several other European parties were present at the conference; all set to learn from the experience the UK has to offer.