The student housing sector has remained remarkably resilient during the recession, largely on account of the underlying supply and demand dynamics, with a mismatch still prevailing in most towns and cities.The assurance of a guaranteed longterm income stream has also proven appealing in the current economic climate and the sector is now attracting a broader range of investors as a result. Although the industry has by no means been immune to the tighter lending environment that has characterised the past few years, there is nevertheless a decent level of investment and development activity underway. While there could well be a slight spike in rents later this year on account of increased demand before the fee hike comes in to play, rental growth is likely to be more muted over the longer term. Indeed, the impending fee increases will have a number of ramifications on the higher education sector as a whole, as well as the nature of demand for accommodation. However, we do not see it dampening demand overall, but rather the increasingly competitive environment will place a marked emphasis on value for money. For£9,000ayear, students will become much more discerning, expecting higher standards, more choice and a better overall experience; accommodation will play a key role in this.
DEMAND FOR UNIVERSITY PLACES STILL RISING
Student numbers have been rising year-on- year over the last five years and by 4% last year alone. The number of students from the UK were up 3% and from elsewhere in the EU, by 6%. But, by far the greatest increase came from those outside the EU ,at 12%. There are now 280, 760 non-EU students, up an additional 30,000 from the previous year. These averages were boosted by a more pronounced interest in full-time study, compared with part-time ,which saw a slight drop.
Underlining the increasing appeal of a university education in the UK, the growth in applications is outpacing the number of places available. This gap will become much more pronounced now that the number of places at each university is strictly capped.
The Government’s Higher Education White Paper, published in late June 2011, confirmed its commitment to creating along-term financially sustainable system and, as part of this, the ‘pay as you earn’ scheme. Although students will have to pay up to£9,000pa, they will not have to pay any of this upfront. This is the key to maintaining demand at curren tlevels. However, students are likely to be more cost-conscious as a result, and their value-for money approach will apply to both the type of education they choose and the type of accommodation. International students will continue to play a critical role in the sector, despite some concerns over the impact of changes to the Tier 4 visa rules. This will most likely be countered by the extremely proactive strategies universities have adopted with regards to the irinternational recruitment.
…SO TOO IS DEMAND FOR ACCOMMODATION
Although the increase in fees will put pressure on some domestic students to live at home during their study period, the majority are more likely to take out larger living loans or dig deeper into parental pockets. Indeed, the increased competition for university places will probably favour the more affluent students, who tend to get higher grades,and who will be less constrained in terms of their living budget. Furthermore, the potential rise in overseas students at many universities will put additional pressure on demand for accommodation.
We expect demand for accommodation to remain strong overall but there will be a much greater drive towards value-for money. Students will come to expect high quality accommodation with communal spaces, a good service-led approach from operators and ideally an all-inclusive rent that minimise any additional risk associated with fluctuating utility prices. Overseas students tend to be particularly drawn to centrally located, high-end accommodation with good security. They are also increasingly attracted to cluster flats, which have additional social benefits.