The face of student accommodation in the UK has changed dramatically over the past two decades, and even more so recently as Brexit approaches. The market hasn't only changed in terms of the types of accommodations that are proving popular to investors, but also in the behaviours and preferences of the students that live in them.
Sources of student demand
In the 1999/2000 academic year the number of students studying in universities across the UK was just under 1.25 million; 670,000 of which studied outside their home region - a total of 56% of all students. This compares to the 2016/17 academic year where full-time student numbers reached around the 1.8 million mark, 1.1 million of which studied outside their home region (58.5%). While these percentages aren't drastically improved, the figures do increase faith in the UK higher education system following the Brexit vote. After the June 2016 referendum, the number of students dropped for the 2017/18 academic year, however as a Brexit deal approaches, this number is rising again, now reaching the 1.8 million mark again - 3.3% up from the previous year.
It must be noted, however, that overall applications to universities from UK students has dropped dramatically, with 23% of students now international. Overall numbers have not decreased though as this is an increase on previous years - applications from EU and non-EU students continue to grow steadily despite Brexit. Most of this drop in UK applicants has come from the 19+ and mature student age brackets. The number of under 19s applying to university has actually increased by 11% since last year, bringing overall applications from UK nationals 9% higher than 2017/18, whilst applications from EU students have only seen a rise of 6%.
These increases in under 19s applying to university has also caused a climb in the number of university applicants applying for "early deadline" courses such as medicine, or for universities such as University of Oxford and University of Cambridge - a 7% increase on students who applied for the current academic year.
Marketisation of student accommodation
Changes to the tuition fee system in 2012 that resulted in fundamental changes to student decision making now appear to be embedded in the sector - Cushman & Wakefield
With the initial changes to the student tuition fees and loan structure - including the amount that students could apply for, the changes to the bursaries offered by universities and the changes to the repayment schemes for these loans - there was some resistance which initially saw a decrease in the number of applications from UK nationals. While this is something that has affected the number of UK applications since, things finally seem to be levelling out to pre-2012.
Supply of purpose-built student accommodation
There are now over 627,000 purpose-built bed spaces available to students for the 2018/19 academic year; a vast increase on the number available just five years ago. This new supply of beds has been dominated by private sector properties, which have also seen a change in the past five years, shifting from Houses of Multiple Occupation (HMOs) to purpose-built clusters and apartments. 77% of all purpose-built beds offered to students are now rented through the private sector, however this is 10% lower than the number for the previous academic year. This is due to a pipeline of on-campus beds offered by the universities planned to be completed by the 2021/22 academic year.
In previous years, studio apartments have boomed in the market, with many students looking for studio spaces to rent individually, something which is much more prevalently offered by private investors. However, in recent years, the number of studio apartments in demand has dropped, seeing a shift to more purpose-built clusters being built. In 2018, just 32% of all beds accounted for were studios, whereas in 2017 this was at 43%. However, this 2018 figure is still a 130% increase on the number of studios available just four years ago.
Universities across the UK still provide 53% of all student beds, with 47% in the private sector - which includes on-campus partnership bed spaces. However, this is significantly lower than 2014 where universities were providing over two-thirds of all student beds. This shift to a preference of private sector accommodation has many reasons, one of which is the space that private sector rooms offer over typical student 'halls of residence'. The average size of a private sector en-suite room is 13.44 m.sq. whereas a university supplied room is often not over 13 m.sq.
Price is a factor which seems to not deter students from private sector beds, as despite this type of accommodation being more expensive than university supplied beds, it's proving more popular amongst students. Particularly those in their later university years are now appreciating and willing to pay more for more space and better facilities, however taking the whole of the UK into consideration, the difference in price between university and private rooms are minimal.
On average, a university bed will cost a student £144.76 per week (£6,079.92 per 42-week contract), whilst a private sector bed will set them back on average £144.87 per week (£6,084.54 per 42-week contract). With many private sector accommodations offering perks to residents such as on-site gyms and cinema rooms, it's no surprise that students are shifting slowly towards private sector rooms over university supplied accommodation. These figures do differ quite dramatically throughout the UK - the Fig. below shows just how different the prices are per week across major university cities.
Private sector accommodation also has the 'upper hand' on university supplied beds as more and more private landlords are offering accommodation on a 52-week basis, rather than the common 42-week basis many student accommodations offer. However, the price per week is little different in comparison, with an average of 70% of a student's maintenance loan going towards accommodation - a figure that has remained unchanged since 2016.
Location plays a big role
Location has always been something which has been a deciding factor for students when choosing their accommodation, and this hasn't changed. Schemes which are closer to the universities have always been in higher demand than those further out. In the past year, accommodations which are just a few minutes away from campuses have seen an increase of 3% in demand, whilst accommodation (whether that's private or university supplied) that is 20 minutes or more away from campus hasn't seen a rise in demand.
Location is also something that is strongly considered by investors - and not only on a sites distance to a university's campus, but also their location within the UK. In the last few years, development has been concentrated in limited locations, with 40% of all new beds in just five cities and 61% in ten locations. Cities such as London, Sheffield and Manchester are safeguarding their place as top university cities, and have also become popular with investors with the yields that they now offer.
Quality and amenities are important to students
Over the past five years, students have shifted from paying minimum amounts for their accommodation, choosing to live in single rooms or HMOs to paying premium prices for boutique apartments. However, this has also meant that residents are now expecting high quality amenities such as residents-only gyms as standard included in their rent. Amenities such as these were shown to be important to students in a recent report from Knight Knox, with students saying they were a factor that contributed towards a good student experience.
Investment in student property in 2018
One reason for private sector student accommodation coming close to overtaking university supplied bed spaces is the drop in investment that has been made. By the end of October last year, just £3 billion had been invested in this type of accommodation, compared to £3.6 billion at the end of October 2017. However, investment is slowly climbing - from July to October 2018 the number of transactions made were more than double from the start of the year with £1.6 billion worth of transactions taking place in this time, compared to only £1.4 billion from January to June the same year.
Brexit; and how it will affect demand for student accommodation
Brexit has been a key concern throughout the whole property industry, not just in the student accommodation sector, especially in the changes this will make to property demand. However, based on previous outcomes, it's expected that student numbers (from both UK and international students) will increase in a time of economic downturn, with highly skilled graduates being more in demand and less jobs available for 18-year-olds leaving education.
Brexit has also seen a decrease in the value of the GBP (£) against other currencies, meaning that tuition fees paid by international students, whilst still the same value in the UK, are less than they were, if paid in a student's national currency. From June 2016 to November 2018 the GBP saw a decrease of: 13.5% against the US Dollar, 13.8% against the Euro, 11% against the Singapore Dollar and 8.3% against the Chinese Yuan Renminbi.
However, it's not just prices that are dropping for international students due to currency exchange rates; the general cost of tuition and living at university (combined) for all students is falling. It is estimated that the total cost of a UK university degree (tuition fee + living costs) has dropped between 5.3% and 7.5% since the vote to leave the EU. Studying in the UK also remains considerably cheaper than studying in other countries, especially in the USA, promoting an ever-increasing number of applications from international students.
Report based on Cushman & Wakefield, leaders in real estate and commercial property research services, 'UK Student Accommodation Report' published in November 2018.