Despite exogenous shocks such as Brexit and the Covid-19 pandemic in recent years, student accommodation remains one of the most resilient UK real estate sectors, writes Jonathan Long
This year’s UCAS data showed that overall student application numbers dipped by 1.6% compared to 2023, but remain 3% higher than in 2019. The 2023/24 period saw the second highest number of UK 18-year-old applicants on record.
The supply of suitable accommodation continues to fall short of this growing demand. Savills data suggests there are currently over 1.3m full-time students across the UK’s 20 largest student cities, but only half a million operational beds.
Despite growing student numbers, the supply of new-built accommodation continues to be depressed given ongoing challenges in viability, build-cost inflation and cost of finance.
At the same time, as supporting student wellbeing has become increasingly important in a relatively short period of time, more and more accommodation is no longer fit for purpose and schemes that were best-in-class are now lacking key amenities.
The change in government policies and priorities under Labour could heighten this supply/demand imbalance even more, further strengthening the fundamentals of UK purpose-built student accommodation (PBSA).
The UK is still a highly sought-after, English-speaking, global study destination and the Labour government is expected to put less of a focus on migration numbers, in contrast to the Conservatives whose visa changes prevented dependents being brought to the UK on study visas and resulted in a significant drop in applications from countries like Nigeria.
The new government has committed to maintaining the current graduate visa route, which provides the opportunity for international students to work in the UK after their studies have concluded.
The supply of house in multiple occupation (HMO) student housing has already fallen in recent years due to higher interest rates and increased regulation. However, under Labour this retrenchment of private landlords will likely accelerate if they introduce expected increases to Capital Gains Tax, which will make owning HMOs less attractive.
Despite a positive outlook for PBSA, the higher education sector is not without its challenges.
Some UK universities are coming under financial pressure and are making budget cuts, or ceasing provision of certain courses, although this is largely not the case with Russell Group universities.
It appears that lobbying from the higher education sector is aimed at obtaining some kind of support from the government, whether it be explicit direct financial backing or more likely an increase in domestic tuition fees.
The Education Secretary, Bridget Phillipson, has indicated she doesn’t have the appetite to bail out universities, and that they should be responsible for managing their own budgets.
She recently said: “Universities are autonomous and there are expectations around how they manage their budgets, and I would expect them to do that without seeking any calls on the taxpayer.”
This means that university mergers are a much more likely solution, if required, than closures or insolvencies.
Investec remains focused on providing debt financing for PBSA projects that service the most popular universities, in cities that are well connected and located, and where there is a lack of supply. Since 2011, we have supported 24 clients, including Harrison Street, Scape, Student Roost and Watkin Jones, with the delivery of over 22,000 beds across 62 schemes in 26 cities.
The long term fundamentals underpinning the UK higher education sector remain strong, with the gap between supply and demand for student accommodation expected to widen even further.
It remains to be seen whether UK universities themselves will struggle in the years ahead but PBSA in the best locations will continue to thrive.
To read the latest IPE Real Assets magazine click here.
