Despite the increase in tuition fees, student numbers continue to expand in the UK higher education sector, placing greater pressure on university teaching, research and accommodation infrastructure. As a result, investment in the sector is increasing and there is a buoyant pipeline of ongoing new work at many universities as part of major long-term development programmes. In addition, the purpose built student accommodation (PBSA) market has emerged as a key investment sector over the past decade, attracting major interest from developers, investors and private operators in 2015.
The latest HEFCE financial forecasts show that the higher education sector is planning on delivering a substantial increase in capital investment up to 2017-18, as competition to attract overseas students intensifies and universities face the impact on the removal of the cap on student numbers from 2015-16. Despite the severity of budget cuts which have hit many universities’ finances, many are still going ahead with projects as planned, and an ongoing backlog of refurbishments and upgrades is also boosting the higher education construction pipeline. However, most HEIs have had to review the ownership and maintenance requirements of their estates and consider various outsourcing options. This has led to an increase in partnerships between universities and private sector developers and investors, especially in the student accommodation and R&D sectors.
While decent accommodation is a key part in universities’ marketing strategy to attract new students, only around 18% of students are currently living in university operated halls, and there remains an acute undersupply of student accommodation in many regions. The ‘commercial’ student accommodation sector is one of the fastest growing sectors in the property market and there are now over 200 commercial PBSA operators in the market. Over the past few years there has been a dramatic change in the balance of supply between institutional and private providers in the student accommodation sector – AMA estimate that in 2016 some 46% is now accounted for by private providers (equivalent to over 270,000 bed spaces) – and a large portion of the shortfall in university owned accommodation is expected to continue to be met by commercial providers going forward.
“In recent years, there has also been a marked shift in the type and range of PBSA, with commercial operators focusing on the development of more expensive accommodation, most notably premium cost studio flats, with luxury accommodation offering features such as wall mounted flat screen TVs, boutique styling, designer furniture and VIP Bars, also coming onto the market” said Andrew Hartley, Director of AMA Research. “This type of ‘high end’ accommodation, aimed at attracting overseas and the wealthiest students, is unaffordable to many, and the concern is that there has been a continued decline of affordable accommodation, particularly self-catered non-ensuite rooms in cluster flats.”
In 2016/17, the outlook for the student accommodation and higher education sector in general remains positive, with student numbers expected to increase with the removal of the cap on student numbers. This is likely to benefit mid-high ranking universities, with developers targeting universities with large student populations such as Portsmouth, Aberdeen, Liverpool and Coventry, and is also expected to trigger rapid growth in the number of overseas students coming to the UK.
Universities are expected to continue to face considerable funding challenges over the next decade, while the PBSA sector has seen an increase in investment from overseas in the past couple of years, with the bulk of investment activity shifting from UK owner-operators to private equity firms, and also now onto global institutional investors. In the longer term, the accommodation market is forecast to remain characterised by undersupply in many of the major university towns across the UK, and growing student numbers - overseas student numbers alone are forecast to rise to 870,000 by 2020 – will ensure that the pipeline of new developments will remain buoyant over the coming years and according to AMA is forecast to grow to over 20,000 bed spaces per annum by 2020.
The ‘Higher Education and Student Accommodation Construction Sector Report - UK 2016-2020 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling +44 1242 235724.
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