The student housing market has well and truly graduated in the UK, but in mainland Europe, there is still a lot to learn, writes Wouter Onclin, Research and Programme Manager, The Class of 2020,

The student housing market has well and truly graduated in the UK, but in mainland Europe, there is still a lot to learn, writes Wouter Onclin, Research and Programme Manager, The Class of 2020,

Success often breeds success and that is certainly true of the student housing market. Indeed, the growth of the UK market from the traditional university-owned halls to swanky high-spec towers and much more has spawned a new wave of investors eager to develop similar developments on the Continent.

That was one of the conclusions to come out of LD Property’s annual student housing conference in London last week. The story of student accommodation in the UK is one of tremendous growth in the past years. The product appeared more resilient in recent turbulent economic times, and even major policy decisions like the overhaul of the academic funding structure (UK students now pay £9,000 in tuition per year) has hardly impacted the overall sector performance.

These fundamentals have attracted the interest of investors worldwide. Total investment in student accommodation in the UK alone exceeded £2 bn in the past two years, and is expected to match this 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 to the sector.

Challenges on the horizon
The market has not only become more professional, it is also more specialised. Even the market of shared houses (HMO’s or off-street housing) is consolidating and becoming more professional and service oriented. James Pullan from Knight Frank pointed to a move from development to investment and a rise in third-party operators of student properties, which is making operating costs immediately transparent. Universities are changing as well, focusing more on the student experience and finding the right accommodation partners to fit their students’ needs.

While the UK market for student accommodation is typified as mature, the market in mainland Europe remains a largely untapped land of opportunity, blurred by a mix of politics, regulations and differences in student culture. And while the fundamentals of the market remain very strong, 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%. This shows the sector’s exposure to policy decisions regarding immigration and tuition.

While the level of sophistication in the UK market continues to grow, there are a number of risks with some developers struggling with the limited availability of good sites and competition from other types of development. For example, the current success of the residential market often means that local councils prefer residential development over student housing development, attendees heard.

This problem 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 and only 417 units due for delivery in 2016. These numbers are all below the growth of student numbers for the city. For London this could mean increasing issues with affordability and may also affect the performance of London as a study destination.

Europe: the next frontier?
Does the combination of increasing investment appetite in student accommodation and the increasingly competitive domestic market for the UK mean that investments are also flowing into other European markets? Well, not quite yet, according to Marcus Roberts of 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 10 years, the number of English-language programmes soaring, and the European education sector rapidly becoming more harmonised under the Bologna treaty. But the challenges in the market remain, especially with regard to planning, politics, regulations and differences in student culture.

An upward march is, however, visible. The Class of 2020, a platform for student housing professionals across Europe, is seeing interest grow. 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. Representatives from several other European companies and organisations were also present at the conference, all eager to learn from the experience the UK has to offer.

Wouter Onclin
Research and Programme Manager, The Class of 2020