New research from Cushman & Wakefield reveals the purpose-built student accommodation (PBSA) market has been remarkably resilient over the last year despite the shadow of Covid-19, as the number of new beds increases and the development pipeline remains strong.
Student accommodation providers across the sector have wrestled with the challenges of campus closures and adaptation and, throughout this whole period, supporting those who couldn’t go home or have chosen to return to campus. The impact of Covid-19 on demand meant that 2020/21 saw the greatest amount of rental discounting in the history of the sector with 25% of all direct let schemes offering some form of a reduction.
The healthy dose of new student beds entering the market for the 2020/21 academic year (+24,800) represents a net increase of 21,000 beds. Some 3,800 beds have left the market, improving the overall quality of stock. Quality accommodation continues to be on students’ minds, demonstrated in the price of a new university en-suite bed increasing by 17% annually compared to 2019/20, although this again raises questions about overall affordability.
The national development pipeline currently stands at 115,000 beds and approximately 58% of these have planning permission. Birmingham has the largest regional pipeline at 6,700 beds.
Cushman & Wakefield’s Student Accommodation Tracker currently records 25,672 purpose-built student accommodation bed spaces in Birmingham for the 2021/22 academic year. The Selly Oak area of the city has been the subject growing investor appetite, with more planning applications seen in the area than before (the pipeline currently stands at just under 5,600 beds). For the 2021/22 academic year, two small, modern schemes totalling 130 beds under new operator, Volume Property, are set to open in September close to Aston University.
Rental growth between 2019/20 and 2020/21 showed rents in Birmingham increasing at a higher rate for studios than en-suite rooms due to the high level of new en-suites that have recently entered the market. Demand at all five major Birmingham institutions has remained high over the last five years, including a significant increase from students outside the West Midlands and this continued demand has sustained a healthy student to bed ratio in comparison to other major cities.
Sarah Jones, Partner in Higher Education Public Sector Advisory at Cushman & Wakefield, said: “Our clients have been faced with unprecedented uncertainties during the last year over the Covid-19 pandemic, but student accommodation operators have risen brilliantly to these new challenges. This has included providing additional support to help ensure the well-being and health of students is protected in these difficult times. Students have made it clear that they are intent on continuing their university journeys and going away to study still has an incredible value in providing important life experiences.
“Although some new beds have been delayed, the continued delivery and positive commercial outlook despite the pandemic confirms the engine for growth is still powering this market forward. Whilst universities may see this recent period of blended learning for many students as an opportunity to consider more flexible ways of learning into the future, the campus is set to be an important focus for learning as ever for students.”
Shifting demographics and winning markets
The future is bright for PBSA as the UK’s position as an academic powerhouse is set to outlive any pandemic uncertainties. There has been an 8.5% increase in overall applications for the January 2021 UCAS deadline, with the rise in applications greater than that seen during the Global Financial Crisis. A recent demographic dip in the number of 18-year-olds in the UK is now set to reverse, as UCAS predicts there will be 90,000 additional 18-year-old domestic applicants by 2025. However, non-EU students are currently driving the growth in applications with a 14.7% uplift in application levels in a single year. Between 2014/15 and 2019/20 there has been a 53% increase in full-time student numbers at the top five fastest growing universities.
In terms of regional breakdown of where new beds were delivered, Coventry led the way with over 3,700 new beds being delivered (16% of the total market). This is followed by London, Leeds and then Exeter. Average rents range from £124 per week in Sheffield, up to £174 per week in Bristol, with London coming in at most expensive at £238 per week.
David Feeney, UK Student Accommodation Advisory Lead at Cushman & Wakefield, commented: “Student numbers show no sign of slowing down with HESA data showing just over two million full-time students studying in the UK at the current time. Students studying at post-graduate level have been a key driver of this growth, with this cohort increasing at an average of 5.1% per annum since 2016/17. Although it might be expected that the Covid-19 pandemic would deter international applications, the UK’s global reputation for academic excellence is helping to shore up the number of applications from non-EU undergraduate students. UCAS data again showed an increase in the number of accepted applicants from non-EU undergraduate students for the 2020/21 academic year.”
Investment market update
The UK PBSA sector is now worth around £60 billion and has maintained its reputation as the go-to alternative asset of choice for investors. The mid-term attractiveness will be driven by the “return to normal” and the UK’s continued reputation as a global powerhouse. London experienced the highest investment volumes across the UK during 2020, with the remaining hotspots predominantly being clustered around towns and cities such as Bristol, Birmingham and Leeds. UK PBSA yields have remained broadly stable over the course of 2020 in prime London and in super prime and prime regional locations.
Andrew Smith, Head of UK Student Accommodation at Cushman & Wakefield, said: “The growth of the PBSA sector has been significant over the past decade with investors drawn to the attractive counter-cyclical nature of the sector alongside a broader increase in allocation to alternative investments. Furthermore, investment yields have remained resilient despite a backdrop of political and economic uncertainty caused in part by Brexit and Covid-19.”