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.”
Cardiff
The Cushman & Wakefield Student Accommodation Tracker recorded 14,712 purpose-built student accommodation bed spaces in Cardiff for the 2019/20 academic year, an increase of 17% from 2018/19, further increasing supply in the city. Growth in the city has been driven by the opening of three new schemes, the largest of which have been Fusion Students’ Zenith development (675 beds) and CRM’s The West Wing (644 beds) on the site of the former West Wing of Cardiff Royal Infirmary.
While the planning pipeline remains substantial, the delivery of beds in 2020/21 will be dramatically smaller than in previous years, with a record number of beds having opened in 2017 (1,808) and 2019 (1,465).
David Feeney commented: “Cushman & Wakefield has been concerned about the number of premium accommodation developments in Cardiff. Throughout 2019 many of these developments have submitted planning applications for change of use, suggesting that there is an over-provision of luxury accommodation in the Cardiff market which is pricing out a large number of the student body. In line with this 2019 also saw an increase of development pipeline schemes being placed on hold or shelved.
“Despite this, overall demand for student accommodation in the city remains healthy and in line with other majorly developed markets in the UK, with well-located schemes which offer good value-for-money product still performing well. We’ve seen an average rental growth of 1.4% in private sector purpose-built schemes between 2018 and 2019, which has been driven by en-suite and standard rooms which have increased in price by 2.7% on average. Conversely, rents in studio rooms have continued to fall, with a 1.2% average reduction in rents observed from the previous year.”
£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.”