Student Housing

Student Housing continues to demonstrate its resilience to wider economic disturbances. Unite’s £1.9Bn acquisition of Liberty Living will grab the headlines as the most significant transaction of Q2 and most likely of the year and beyond. The market was not necessarily in need of a confidence boost but if nothing else, this statement underlines the continued belief in the sector amongst investors.

2019 transaction volumes for PBSA are on track to move ahead of the £3.2Bn transacted in 2018 as the market experiences strong investor demand and good availability of stock. The widely forgotten HMO and secondary markets are equally resilient with investor appetite and curiosity having notably gathered momentum throughout the course of the year. Both sectors are benefitting from new investor appetite as opportunities can offer cheaper alternative accommodation in a market where affordability is quickly becoming a key issue.

At today’s date, national student platform StuRents estimates there to be 116,000 beds with approved consent and a further 38,000 pending determination. Whether or not all these are delivered is questionable but the very depth of opportunity will continue to drive the market as traders recycle operating stock in order to fund new developments. This will continue to add value to an asset class reportedly worth a total of £65Bn (current) and provide the scale required in order to capitalise on the recent influx of Asian Capital.

Q2 brought the release of the eagerly awaited UCAS data providing the official 2018/19 student intake numbers. The report confirmed that international student applications have risen again, (up 6% year on year) despite concerns in respect of BREXIT. Overall applications fell -0.6% from year to date with acceptances similarly falling albeit a marginal -0.1%. What does this mean for student housing? On the face of it not a lot but a closer analysis of the data reveals significant trends. From a high level perspective, the Russell Group universities are experiencing growing student intakes well ahead of the national averages, whereas less established, poorer quality institutions are suffering year on year decline.

2019 transaction volumes for PBSA are on track to move ahead of the £3.2Bn transacted in 2018 as the market experiences strong investor demand

This analysis supports the continued investor demand for stock in Russell Group towns and cities and increased scepticism for opportunities beyond. Notwithstanding, each destination requires its own micro analysis and there are sound investment opportunities to acquire well located high performing assets in secondary towns and cities underpinned by successful former polytechnic institutions offering vocational degree courses.

May 30th saw the delayed release of The Augar Review. Commissioned by Theresa May, this is a review of post 18 education in England with a focus on higher education and, more specifically, funding and tuition fees. If the panel’s recommendations are implemented fully, the higher education sector should receive the same total amount of funding, but it will be distributed differently. The suggested cap on tuition fees (£7,250 from £9,250) will leave a funding deficit of c.£2Bn supposedly topped up by the government in the form of ‘grants’.

However, the additional funding would be handled on a discretionary basis and is most likely to be allocated towards higher quality degree courses where teaching provides a higher value to the student and the UK wider economy. The Augar review recommendations will therefore deplete lesser university courses offering poor value for money experiences. Likely then that the better universities will prosper, offering yet further support for investment in stronger academic centres.

Anthony Hart

DL +44 (0)113 243 7950