The outlook could be bleak for the Higher Education sector…

“UK higher education institutions together educate some 2.5 million students annually, including over 400,000 from outside the UK, making the higher education sector one of the most important export earners for the UK economy. The last 10 years has seen significant expansion, with a 28 per cent increase in student numbers from all domiciles.”

Source: UK Universities – Patterns and Trends in UK Higher Education 2011.

The UK Higher Education system is world leading. We now have 165 HE institutes offering a wide-range of academic choice for both national and international students. The success of the sector has resulted in major investment and development in Academic campus teaching/ learning facilities and also student accommodation – a sub-sector which emerged in its own right, and matured significantly over the last ten years. The HE sector is arguably the strongest it has ever been. However, we are now witnessing a major change in the sector – the impact of this could be negative and have long term implications.

Lewis and Hickey have seen a significant amount of work over the last 6-8 years in Student Living. We have delivered over 11,000 beds to date. We have also worked with a growing number of Universities on Academic facilities. The image below is our “Si Yuan Centre of Contemporary Chinese Studies” faculty building at the University of Nottingham. This is due for completion at the end of October.

In the last two weeks I have spoken to a number of different Universities and closely related University businesses. It is confirmed that undergraduate student intake numbers are down this year. This could be by as much as 14% (54,000) or more. The full extent of the shortfall is not known just yet, but it is definitely causing some concern. It is anticipated that this reduction could cost the HE sector £1.3b in the next three years.

This year sees the start of the £9000/ year fees and, despite warnings from UCAS, the Governments policy on AAB requirements (from ABB). Add to this the continuing global recession. The outcome is a shortfall in students starting University. The reasons for this are no doubt varied. Affordability is a major one, but the Russell Group Universities are also seeing their top courses under-subscribed for the first time due to the AAB introduction. Have we pushed the sector too far? Nick Clegg has recently made a somewhat unprecedented apology for the rise in fees from his parties perspective. This can be seen here (the non-musical version!). This apology (from the Lib Dem’s) underlines the significance of this issue.

There are wider implications as well. Privately owned Student Accommodation has continued to deliver strong yields for investors and lenders through the recession. However, demand and occupation is critical to financial models. Having as little as 5% empty rooms across a port-folio can have major implications. Owners/ operators are now assessing whether to reduce rentals and/ or invest in upgrading facilities – the former being most likely. This will directly affect asset values and of course investor returns, resulting in reduced confidence.

This could mean a rather bleak outlook. I believe that the HE sector and associated capital investment/ development could start to change/ reduce soon. The big question is; will this be a short-term blip (a year or two) or a long-term change for the sector? How the Government and HE sector respond to all this will be critical. No doubt the HE institutes will be unable to stand still, perhaps they will focus on further growth outside of the UK? This would obviously be negative for the UK economy.

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