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…