32,000 new beds entered the booming UK student accommodation market for the 2019/20 academic year, taking the total number up to 660,000, with transactions reaching £2.5billion by the end of October, according to new data from Cushman & Wakefield.
According to the research, an overwhelming proportion of these new beds were delivered by the private sector (87%) – the joint-highest proportion of new privately-owned beds on record.
Some 95% of all beds this year featured a small double bed or larger, with nearly 19,000 having access to large common spaces (such as a gym, study room, or common room) emphasising the student focus on overall university experience, which increasingly includes the quality of their accommodation.
The report reveals that a new private sector en-suite bed costs on average £6,883 per annum. The pricing differential between private sector and university en-suite beds is reducing, according to the new data. Average private sector en-suite accommodation is now priced just 1.3% higher than the equivalent provided by university themselves. Regional rents vary significantly across the UK from a low of £119 per week in Belfast to £232 per week in London.
Looking ahead, a total of 114,000 student beds are in the Purpose Built Student Accommodation (PBSA) pipeline for 2020/21 and 76,000 of these already have planning permission. However, the number of new beds set to enter the market for 2020/21 is expected to be below 30,000 for the first time since 2015. This dip should only be seen in 2021, with nearly 47,000 beds currently scheduled to open in time for the 2021/22 academic year.
The report shows that at the current rate of development, the national demand pool for accommodation is still increasing around 30% faster each year than the number of beds being developed. The market is therefore likely to continue to remain structurally undersupplied over coming years.
David Feeney, UK Student Accommodation Advisory Lead at Cushman & Wakefield, commented: “The momentum behind student accommodation continues, with the marketisation of the higher education sector leading to an explosion of growth in student headcounts at many institutions. Eighteen universities are now home to 4,000 more students than just five years ago. The global prestige and brand strength of the UK’s academic institutions remains very strong, and there has been 33% growth in international student numbers over the past five years at the strongest STEM universities. In light of this, demand for student beds continues to outpace the overall supply pipeline. However, within that there are different levels of demand and not every market is out-performing. Therefore, it is critical to have intimate local knowledge of the different factors in putting a strategy together.”
Liverpool
The Cushman & Wakefield Student Accommodation Tracker records 27,128 purpose-built student accommodation bed spaces on offer in Liverpool for the 2019/20 academic year. As one of the largest university cities in the UK, Liverpool is home to four Higher Education Institutions, where the largest sources of demand derive from the University of Liverpool and Liverpool John Moores University. The University of Liverpool continues to attract a significant international student population to the city, with overall student numbers growing by six times the nationally observed rate of growth. The remaining institutions have also shown continued growth over the last two years, indicative of sustained student demand for purpose-built student accommodation. As such, the market has seen rapid expansion in recent years, with the largest number of purpose-built beds built since 2015 after London.
2019/20 has seen a remarkable 3,989 new bed spaces across eight developments brought to the Liverpool market – the largest number of new beds ever delivered in any market in a single year outside of London. The largest of these is Unite’s 1,085 bed space Horizon Heights scheme adjacent to Lime Street Station. Horizon Heights benefits from a huge range of social and communal facilities, including a fully equipped gym and a sky lounge with views of the City. A wide range of room types are available with prices ranging from £148.50 to over £200 for the largest studio rooms. Fresh Student Living’s 735 bed Calico scheme is located to the north of Lime Street, with a cinema room and extensive games areas to benefit the student experience. A sky lounge is also available. Rents range from £130 to £175 per week.
David Feeney commented: “We are concerned about Liverpool market being close to reaching saturation point, although there should be a slowdown in development for 2020/21, with fewer than 900 new beds set to be brought to the market. It should be noted that just over 1,100 bed spaces have left the market this year and Liverpool has successfully managed to move large numbers of students out of poor quality private rented accommodation. Despite this, investors have continued to support HMO accommodation in popular student areas such as Wavertree. These developments have helped to support healthy rental growth of 3.0% over the last year, above the national average.”
Leeds
The Cushman & Wakefield Student Accommodation Tracker records 20,812 purpose-built student accommodation bed spaces in Leeds for the 2019/20 academic year – a slight but not significant increase over the previous year. Only the one new scheme opened in 2019, Vita Student’s St Albans scheme, their first venture into Leeds, comprising of 376 ultra-high-end studio apartments. Accommodation benefits from extensive social and amenity spaces, including a gym and coffee lounge, as well as a wide range of events such as personal training sessions and pop up golf.
David Feeney said: “Due to the relative lack of growth in the PBSA market in recent years, Leeds has seen very strong private sector rental growth in recent years averaging 4.9% growth per year for the last five years including 6.4% between 18/19 and 19/20.
“2020 will see the first year of significant increase in bed numbers for some time in the city – four schemes totalling 2,000 beds will likely come to the market in time for the start of the 2020/21 academic year. Portland Crescent operated by Vita Student; Symons House – Prestige Student Living; The Refinery – Fresh Student Living; White Rose View – Unite Students should all open in September and are likely to have a large impact on private sector market in Leeds. The development pipeline in Leeds currently stands at 5,186 beds with 4,633 beds with full planning approval. Whilst the market is likely to remain healthy overall, there is likely to be some slowdown in the significant rental increases seen over recent years as competition increases.”
Earlier this month, Cushman & Wakefield’s Leeds office acquired Brotherton House, prominent former office building in the city centre on behalf of serviced student housing provider, Study Inn Group who will converting and extending the building to deliver around 400 student bedrooms.
Keith Hardman, Head of Cushman & Wakefield’s Leeds office, added: “The growth of Leeds student population mirrors the success the city has enjoyed and the reputation it has developed as a centre for academic excellence, both within the UK and overseas. It also mirrors the success of the wider Leeds City Region which hosts the largest higher education cluster outside of London. Its nine universities produce world-leading research and 39,000 skilled graduates each year.”
“As competition for high skilled employees intensifies the availability of student talent will be a key attraction of Leeds as a commercial centre and of the city’s appeal to businesses looking to relocate to the region or at implementing expansion plans. This bodes well for the Leeds economy and the sustained growth in values across the city’s property market.”
Newcastle
The Cushman & Wakefield Student Accommodation Tracker records 19,800 purpose-built student accommodation bed spaces in Newcastle for the 2019/20 academic year. Only 227 new studios have entered the market this year, having no noticeable impact on what was the fastest growing PBSA location in the UK outside of London over recent years. No new schemes are set to open for the 2020/21 academic year which should help the market to start to properly absorb the 8,978 new bed spaces delivered since 2015. Further, the development pipeline in Newcastle has reduced in size considerably in the last few years, now totalling 1,500 beds, with only 663 of these currently having planning approval.
David Feneey said: “The plethora of development over recent years means that en-suite beds are by far the most common room type, with 63% of Newcastle’s supply falling into this category. However, the proportion of studio flats has also grown strongly to nearly 20% of total beds, well above the national average of 13% although absorption of these products now means that studio rental growth has been higher than any other room type in Newcastle in recent years. Despite this, rents overall have fallen over the last three years although Cushman & Wakefield anticipates rents moving into positive territory over the next two years.”
£2.5bn transacted in 2019
The report shows that by the end of October 2019, Purpose Built Student Accommodations deals worth £2.5billion had been transacted in the UK. Whilst this is behind the £3billion transacted in the whole of 2018, there is still an estimated further £2billion of potential deals under offer. The quarterly transaction analysis shows a peak in transactions in January, accounting for a number of deals which failed to complete in the final quarter of 2018.
The greatest source of capital (by transaction value) is Europe by a significant margin, with £895million of investment coming from this market. This is followed by the UK (£470million) and Asia (£359million).
George Dyer, Student Accommodation Investment, said: “This year has been characterised by the growth of hospitality-led premium purpose-built student accommodation with the likes of Vita Student, Fusion and True Student all selling assets, equating to £900million and 36% of total UK investment volumes. This segment is particularly focussed on non-EU students, particularly from Asia, which represents one of the fastest growing segments in terms of demand, and one which is likely to continue to outperform in a post-Brexit environment.
“Strength of location, and amenity offering are key for investors when analysing new opportunities, however investors are increasingly attuned to the importance of getting the right operational partner and how this is the key driver of value. As the sector continues to grow and mature, having the right operational alignment will, in our view, be as important as the building fundamentals in driving investment performance.”
