An impression of LD Property’s Student Housing Event by Wouter Onclin, Research and Programme Manager at The Class of 2020
The UK student housing market is often described as mature. When Philip Hillman (JLL) asked panellist at what age in the life cycle they think the market actually is, consensus was that it is somewhere in its 20’s or early 30’s. Mature, but with potential to develop, learn and grow. Mainland Europe’s student accommodation market on the other hand remains a largely untapped land of opportunity, blurred by a myriad of politics, regulations and differences in student culture. If there is one thing that all markets have in common: in order to build the right kind of accommodation, you have to know your customer. As Nick Riley of WCEC architects put it: “You can’t play poker around a breakfast bar”.
Welcome to LD Property’s annual Student Housing event, where over 300 professionals in student accommodation met on Thursday. The event showed 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 on Wednesday. And even the market of shared houses (HMO’s or off-street housing) is consolidating, becoming more professional and service oriented. There really is a student bed for everyone.
A £2bn per year sector
The story of student accommodation in the UK is one of tremendous growth in the past years. The product appeared more resilient 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 investors worldwide, seeking to invest in student accommodation. 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 its exposure in student accommodation.
Holistic student experience
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. From nomination agreements to recommendations to a regular phone call. Partnerships come in many forms.
Growth is not universal
But 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%. It shows the sector’s exposure to policy decisions regarding immigration and tuition.
London becoming too expensive
Another challenge for the UK market 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 development over student housing development. 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 to a current projected pipeline of only 417 units to be delivered in 2016. Numbers that are all below the growth of student numbers for the city. For London this will mean increasing issues with affordability and might affect the performance of London as a study destination.
Europe: the next frontier?
An increasing investment appetite in student accommodation and an increasingly competitive domestic market for the UK – does this mean that investments are also 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.
A build up does seem to be taking place. 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. Many other European parties from France, Austria, Germany and The Netherlands were present at the conference; all set to learn from the experience the UK has to offer.
So as the UK student housing market is graduating, the European market is just starting school.