The purpose-built student accommodation (PBSA) market has been remarkably resilient over the last year despite the shadow of Covid-19, as the number of new beds increases and the development pipeline remains strong. New research from Cushman & Wakefield reveals that student accommodation providers across the sector have wrestled with the challenges of campus closures and adaptation and, throughout this whole period, supporting those who couldn’t go home or have chosen to return to campus. The impact of Covid-19 on demand meant that 2020/21 saw the greatest amount of rental discounting in the history of the sector with 25% of all direct let schemes offering some form of a reduction.
The healthy dose of new student beds entering the market for the 2020/21 academic year (+24,800) represents a net increase of 21,000 beds. Some 3,800 beds have left the market, improving the overall quality of stock. Quality accommodation continues to be on students’ minds, demonstrated in the price of a new university en-suite bed increasing by 17% annually compared to 2019/20, although this again raises questions about overall affordability.
More than half (58%) of beds are now en-suite, and the number of rooms let by operators directly to students has increased in size by 119% over the last seven years. The private sector has again delivered the majority of the new beds this year (85%) and the private sector now owns 51.4% of beds in the UK. Average private sector rents (excluding London) stood at €8,158 (£7,040) per annum, versus €7,427 (£6,409) in university-owned accommodation (excluding London). Beds wholly owned by universities, by contrast, have grown by just 4%, indicating an increased appetite for universities to work with accommodation providers in long- and short-term partnerships. The national development pipeline currently stands at 115,000 beds and approximately 58% of these have planning permission. Birmingham has the largest regional pipeline at 6,700 beds.
Sarah Jones, Partner in Higher Education Public Sector Advisory at Cushman & Wakefield, said: “Our clients have been faced with unprecedented uncertainties during the last year over the Covid-19 pandemic, but student accommodation operators have risen brilliantly to these new challenges. This has included providing additional support to help ensure the well-being and health of students is protected in these difficult times. Students have made it clear that they are intent on continuing their university journeys and going away to study still has an incredible value in providing important life experiences. Although some new beds have been delayed, the continued delivery and positive commercial outlook despite the pandemic confirm the engine for growth is still powering this market forward. Whilst universities may see this recent period of blended learning for many students as an opportunity to consider more flexible ways of learning into the future, the campus is set to be an important focus for learning as ever for students.”
David Feeney, UK Student Accommodation Advisory Lead at Cushman & Wakefield, commented: “Student numbers show no sign of slowing down with HESA data showing just over two million full-time students studying in the UK at the current time. Students studying at the post-graduate level have been a key driver of this growth, with this cohort increasing at an average of 5.1% per annum since 2016/17. Although it might be expected that the Covid-19 pandemic would deter international applications, the UK’s global reputation for academic excellence is helping to shore up the number of applications from non-EU undergraduate students. UCAS data again showed an increase in the number of accepted applicants from non-EU undergraduate students for the 2020/21 academic year.”
The UK PBSA sector is now worth around €69.5bn (£60bn) and has maintained its reputation as the go-to alternative asset of choice for investors. The mid-term attractiveness will be driven by the “return to normal” and the UK’s continued reputation as a global powerhouse. London experienced the highest investment volumes across the UK during 2020, with the remaining hotspots predominantly being clustered around towns and cities such as Bristol, Birmingham and Leeds. UK PBSA yields have remained broadly stable over the course of 2020 in prime London and in super-prime and prime regional locations.
Andrew Smith, Head of UK Student Accommodation at Cushman & Wakefield, said: “The growth of the PBSA sector has been significant over the past decade with investors drawn to the attractive counter-cyclical nature of the sector alongside a broader increase in allocation to alternative investments. Furthermore, investment yields have remained resilient despite a backdrop of political and economic uncertainty caused in part by Brexit and Covid-19.”