Because of its highly profitable, yet steady, income for private landlords, UK purpose built student accommodation (PBSA) is often seen as an investment golden goose. But what are the challenges that PBSA faces in this current climate and how are we seeing the sector adapt to stay relevant?
The PBSA market has grown significantly in recent years, with currently a record 627,000 bed spaces in the UK (according to the UK Student Accommodation Report 2018 by Cushman & Wakefield). However, this has not kept up with the increasing numbers of students, with full-time student numbers outweighing these bed spaces by a 3:1 ratio.
“Student numbers from now until 2030 are forecast to grow by 220,000, indicating that a high volume of additional future student accommodation will be required to address this imbalance of demand and supply.”
Seventy-seven per cent (77%) of new 2018/19 bed supply was provided by the private sector, suggesting that universities are becoming increasingly reliant upon it to deliver the large volume of PBSA required.
Challenges of PBSA
Government concerns – the Augar Review, published on 30 May 2019, points out the ‘widespread and significant concerns about the cost of student accommodation’. It recommends that the Government and the Office for Students (OfS) should work more closely with universities to be more transparent on the availability of certain types of accommodation and their associated cost.
Affordability – students expect high quality accommodation for an affordable rent. High-speed broadband, communal areas, gyms, cinemas and bars, are just as important at the bedrooms themselves. However, with costly tuition fees and rising living costs, students are always looking to reduce how much they pay for their accommodation. The London Plan has sought to address this by imposing affordable requirements on new build projects but this is simply seen as a further burden on viability for providers.
Community and wellbeing – even though students want independence, research shows that they still prefer to live with flatmates. Therefore the fact that the traditional multiple occupancy flats with en-suites sell out quicker than studio flats, suggests that students want to live with others, but in an environment which is comfortable and provides both private and social space.
Increase in construction costs – private developers usually build PBSA in the form of communal flats (bedrooms with a shared living room and kitchen) or private studios, which often include high end leisure facilities. Schemes which charge a lower rent to students, (typically sub £160 per week) have shared bathrooms and very little by way of extra communal space in accommodation. These schemes (although affordable to the majority of UK-based students) are proving to be unviable by private developers due to the increase in construction costs and these challenges put pressure on margins. However, the PBSA sector is quite well served at the higher end of the market. This is often taken up by international students who require high-end accommodation, absolute convenience, and can pay for it.
Addressing the challenges of PBSA
Focus on overseas students – developers may feel like they have no choice but to focus on the higher end of the student accommodation market. This will predominantly comprise the overseas wealthy students who can afford to pay premium rents for premium accommodation. Until that end of the market is saturated, most developers will likely focus on that £160 + price bracket.
Provide mass market solutions – there is no magic solution, however there are opportunities for developers and contractors to work out lower constructions costs by perhaps looking a modular construction, or by designing innovative accommodation with alternative room types. Otherwise, the balance of student demands with a profitable business model will not be met.
Collaboration between universities and the private sector – universities and student accommodation providers are now beginning to work more closely together to provide new and innovative accommodation that enhances wellbeing, promotes social interaction and contributes positively to a student’s overall university experience. University guarantees have been used in the past to leverage financing but most are keen to keep accommodation projects off their balance sheet.
How will these trends develop?
There is an increase in demand for student accommodation within the UK, which is being let by the private sector. With the UK continuing to maintain its global reputation for higher education institutions, it is likely that there will continue to be a high demand of good student accommodation in prime locations from both UK-based and international students.
The heightened awareness for student accommodation to be of a greater quality, will push developers to have an increased focus on design, and work together with universities to make the accommodation an integral part of the student experience.
“Student mental health has become a top priority for both universities and policy makers; therefore it is likely that we will see this impact on student accommodation developments.”
We may even see the current pattern of providing highend, studio schemes hitting a plateau, as student demand appears to be changing. It appears that students want a sense of community, therefore private developers and student accommodation providers need to find new ways of working together, to design buildings which accommodate these student demands, together with the balancing act of delivering viable schemes.