UK ‘indigestion’ and global growth in Student Living investment

Last week I blogged about ‘will the student living development boom continue?‘ This blog post was just ahead of the annual Property Week Student Accommodation conference in London.

It was an informative and useful day – better than previous ones I think. It was well attended with around 425-450 industry professionals there ranging from; Architects, Agents, Construction, Investors, Developers, Banks, Operators, Universities and more.

One of the opening statements was; Recessions historically link to an increase in HE demand. However the trebling of fees has directly prevented this trend in 2012.

What were the key learning’s?

There is no doubt that the impact of the fee increase and UCAS changes have dramatically affected the sector this year. Previous years have seen consistent and steady growth. The University intake numbers are down and therefore demand for accommodation has suffered. Around September time, major operators were reporting occupancy levels of around 90-95% (doesn’t sound much of a drop?). 5% empty stock across a port-folio of 15,000 beds equates to over £3m revenue loss in a year! It also affects the asset values. Unite have 40,000 beds, Opal 19,000, Liberty Living 16,000. The occupancy levels have improved to around 97-98% between September to November, but its unclear whether these rentals are at; reduced cost levels, for shorter periods and also some operators have thrown in iPads and other incentives to fill rooms!

We wont know what the long-term affect of this dent in student numbers is until October time next year. H.E. intakes need to bounce back by then. If Universities face a second year of reduced numbers, it will have a much greater impact, as those students (and this years) go through their typical three year degree programme. A second year of this could really affect Universities income and business strategies. The student living sector will follow suit.
Mark Quigley of Barclays described the current situation as a ‘perfect storm’ and that he believes the sector has ‘indigestion’ which will naturally correct itself in time.

This year, we had ‘who wants to be a millionaire’ style live audience questions throughout the day. Richard Simpson of Unite asked; “What do you think will happen to capital investment levels into purpose built student accommodation next year (in the UK)?”

The response was; 28% stay the same, 27% increase, 40% decrease, 5% no idea.

A fairly mixed view out there and this illustrates the uncertainty we are facing.

Looking at some more positive news, the global growth of the sector is here and now. Jones Lang LaSalle reported on the emergence of international growth last year, but it would appear we are really seeing this now. Europe has been much slower than the UK in terms of investment and development in purpose built Student Accommodation, but its growing now. Opportunities are fast emerging in India, Dubai, China and Australia (to name a few) at some pace too. Lewis and Hickey have been working on a major opportunity in Australia recently and are already present in India – we will be looking at how we can promote our UK experience on a global scale.

Phillip Hillman of JLL asked the audience; (whats your view on) “Opportunities for Student Housing on mainland Europe?”

The response was; 47% a great opportunity, 28% indifferent, 25% Eurozone – forget it!

It was also stated that a UK or International student can study (on English speaking courses) and live in parts of Europe for £10k/ year. In the UK, students face a figure of £15k+. If we aren’t careful we could be pushing students out into Europe and other parts of the globe to seek a cheaper education, combined with travel. The Government need to take note of this and be careful we don’t trip our strong H.E. sector over.

A final point, which came up a few times during the day was; getting the design right. Ensuring the operational aspects of student schemes are effective is now more critical than ever. ‘Student Experience’ directly links to occupancy levels and also, importantly, in terms of retaining those individuals for future years residence. The expectations and demands students now have, shouldn’t be underestimated, especially as they are paying so much for their education. Here’s one of our typical student bedrooms…

So the sector faces some challenges, but also opportunities too. The UK outlook will remain a mixture of sunshine and showers until next year…

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Will the student living development boom continue?

Tomorrow is the annual Property Week Student Accommodation conference in London. It’s a well-attended event where the great and the good of the student living fraternity reflect on the last twelve months and consider where the sector might go in the next twelve months. For us, it’s also a great opportunity to see many of our contacts in one go.

This has been a tough year for Student Living. The introduction and impact of the £9000 University fees can start to be seen. Also the UCAS ‘AAB’ change has left a lot of high-ranking courses under subscribed for the first time in many years. There is arguably now the highest supply of accommodation on the market – giving students a wide choice. Their expectations, based on the amount of money they are paying to learn/ live, are high. Regardless of price, student living needs to be premium quality in terms of specification and operations. I suspect the key question we need to ask this week is;  We know there will be an adjustment in the market, but will this be a long-term shift or a short-term blip?

I often talk to clients about our experience in student living – we have a diverse track-record now and there is no doubt that this sector has remained strong for us throughout the recession. When we first got heavily involved in the sector back in the mid-2000’s, we were predominantly working for private sector developers with an open tap of funding supply. Over recent years, we have seen a strong shift towards on-campus University development. This has been working with Universities directly or via Public Private Partnerships (PPP) or Design, Build, Finance, Operate (DBFO) routes. Our private sector experience is something Universities are keen to tap into. We are also seeing an increase in Refurbishment of old stock. This is necessary to keep it competitive.

In terms of our activity this year, I thought I’d share a bit about our current projects. We first got involved in Student Living via our Manchester office, but that quickly grew into our Nottingham location. Today, we are working on Student Living schemes in all of our UK offices in; Edinburgh, Guildford, London, Nottingham and Manchester. We are also currently pursuing an opportunity in Australia. It’s a great success story for us and I’m proud to have personally been a lead part in that growth.

The UK is No. 1 in the world for the maturity of its purpose built Student Living products. (Click here to see a Jones Lang LaSalle report on this). We are now seeing an increasing number of global Universities seeking to understand our experience and we have a great opportunity to spread our work outside of the UK now.

Here’s a selection of our key projects for 2012 and beyond…

University of Stirling. We are currently working, under the OGC Buying Solutions Framework, to provide a £35m development of 786 new bedrooms. This is phased over 3 years.

University of Warwick. We were appointed by Shepherd Construction to deliver 570-beds on-campus. The scheme was built to a very tight construction programme and achieved BREEAM Excellent.

Russell Street, Nottingham. Working with our long-standing partners OCON Construction, we have delivered another private student living development for an investment consortium in Nottingham.

University of Hertfordshire. We were selected by Sir Robert McAlpine’s to bid on a new 3000-bed campus redevelopment. This competitive tender included designs up to RIBA Stage D to achieve a BREEAM Outstanding campus.

University of Essex. Working with Bouygues and Derwent FM (under the ULiving consortium), we won, via competitive OJEU tender, the development of 650 new bedrooms on campus in Colchester. This scheme includes cluster accommodation and townhouses. We are also using a pre-cast concrete construction system. You can see the progress of this project here. The image below illustrates the cluster blocks on the right and the townhouses on the left. The two-storey building on the bottom image is a student hub.

Aston Student Village. Our biggest project to date; circa 2500 new student bedrooms, built in three phases, on a live city centre campus at Aston University. Phase 1 was completed in 2011 and Phase 2 completes next summer. We are currently working with BAM Construction on this.

University of Liverpool. Working with OCON again, we won the development of 1259 student bedrooms on-campus in Liverpool. This was awarded Planning in August and has started on site recently. Aerial image of the proposed development below.

Liberty Living, Southampton. We are currently finalising a Planning permission for the conversion of a 12-story office block to student living and also the development of 150-beds in a new 16-storey tower on a site in Southampton.

University of West of Scotland. We have delivered two separate developments for this University on their Paisley and Ayr campus’. The Paisley scheme has recently been completed and we worked with Graham Construction.

The list above is a mere snapshot of our experience, but I hope it demonstrates our strength in this sector. Our exposure to more and more Universities is also seeing us develop strong working relations with Universities to design new faculty and academic buildings – a sector we are keen to build on.

So, Will the student living boom continue? I suspect it will for some time yet – certainly on-campus. But we are likely to see a slowdown I think. We’ll see what comes out of the conference tomorrow…

Architecture – creating the right environment.

Given our long-standing work in the retail sector, we have regular dialogue with clients about ‘customer/ user experience’ – and getting it right. For me, this term defines the creation of a complete environment which is perceived as positive (or negative) for the target audience; the customer/ user. In a retail context, this can include; products on sale, customer service, clear way finding, interior finishes, product displays, lighting and signage. On example might be the way a product is lit; this can have a direct impact on how it is seen and therefore whether a customer chooses to buy it.

My wife recently visited a well-known national retailer in our local Shopping Centre. This store, when first opened about 5 years ago, was modern, but perhaps a bit too stark by normal standards. It had a grey floor throughout and plain walls. It felt bland and it was easy to get lost in. Apparently the store has been refurbished at some point recently and the impact this had on my wife seemed significant. Clearly it wasn’t all about the interior fit out. The product line and service from staff was good too. But the environment did have a tangible impact on the customer. I haven’t seen the store myself, but I’m intrigued to go now – good indirect marketing in itself! Apparently the finishes and overall aesthetic are of a really good quality and it’s easy to navigate around the store. These may seem relatively simple things, but creating the right environment is so important and can transfer directly to sales and income for businesses. The environment, if done correctly, can also be a direct reflection of a Brand. Look at any Audi dealership – they have a theme and reflect key qualities of their products. Likewise Apple stores reflect their brand and products. A visit to any Apple store is always an experience and there is a theme which is consistent wherever you are in the world.

L&H’s work spans many different sectors which includes environments for; retail, workplaces, education, leisure/ entertainment and living. Through all of our work we put a lot of effort into ensuring that the architecture is right and the building has an identity which is aesthetically pleasing. But we also work hard to ensure that the user experience is considered throughout. I don’t think this is something that all architects consider. There seems to be a focus by others which is all about the most design-led ‘look’ with little or no priority given to a) how the building will be used/ experienced on a humanistic level, and b) how the building will wear over time. How often do we see crisp, white modernist boxes which look amazing when first built…but are then tired and worn in just a couple of years – is this creating the right environment? I think not.

I think there are many architects who are perhaps too focused on their own port-folio, creating buildings which can be perceived as showcase or ‘trophy’ architecture. Is this right? Will this architecture last? Who benefits long-term?

I believe Architecture is about creating buildings which are aesthetically pleasing, appropriate to their context AND, perhaps most importantly, creates the right environment for the users. Buildings are for people. In the world of ‘design and build’ led construction and endless ‘value engineering’ at every opportunity, the focus all too often is about finishing the job quickly, easily and for as a little money as possible. Managing these issues are perhaps our greatest challenges now as architects.

This years Stirling Prize winner, the Sainsbury Laboratory in Cambridge is, in my view, a fantastic building. It exudes design and construction quality in every image you see. Designed by Stanton Williams architects, these guys seem to be a practice who do not seek fame or trophies – but do so from simply creating outstanding architecture – the way it should be. However, it must be noted that this particular building cost £80m! In fact, a lot of high quality contemporary architecture seems to emerge on University campus’ – are these clever people a minority which still appreciate true quality in architecture and impact it can have on its users?

People seem complacent sometimes about architecture. Buildings are permanent. They have an impact on the built environment within which they exist for many decades. They need to be right. It seems that quality architecture is being continually eroded and devalued. More and more people, seemingly regardless of professional experience/ training, have an increasing influence over design and architecture – this is not right. The industry needs to appreciate the value of architecture more and the positive effects it can create, both in terms of human experience of buildings and also longevity of our built environment.