A record number of new student accommodation bed spaces (30,000) have been delivered in 2017, taking the total number of purpose-built spaces available to 602,000.
Cushman & Wakefield’s UK Student Accommodation Report 2017/18 looks at the student accommodation market across the UK, including demand and supply of new developments. While the numbers of newly delivered en-suite and studio spaces have both increased significantly, the supply of studio rooms has increased by 106% since 2014.
Overall rents per bed space in student accommodation increased 2.9% between academic years 2016/17 and 2017/18, marginally above the 2.7% seen during the same period in the previous year, indicating the sustained health of the student accommodation market as a whole. However, there were significant variations across the UK as well as by type and sector.
Cardiff University and Cardiff Metropolitan have both seen growth in student numbers over the last five years, with large increases in the number of students from outside Wales, including international students. There are now 12,111 purpose-built student accommodation bed spaces in the city with a further 1,756 due to be delivered this year. The number of studio rooms in particular has grown from just 3% of the market in 2015/16 to 14% in 2017/18 – above the national average.
Due to a relative undersupply of accommodation headline rental growth in Cardiff has been healthy, with en-suite rents up 5% and studios increasing by 2%. However, this masks issues in the market, with a number of studio beds being unfilled last year and discounts of up to £500 being offered as affordability and value come to the forefront of student decision making. This highlights the need to provide accommodation of true value if large numbers of students are to be tempted out of traditional HMO (house in multiple occupation) areas in Cardiff into purpose-built stock in the city centre.
Andrew Gibson, Investment & Development Partner at Cushman & Wakefield in Cardiff, commented “With the surge in completion of studio led schemes and pressures on the operators to achieve occupation of these rooms, a number of the schemes have amended planning consents to allow for general residential occupation. This suggests that the studio market is likely to have achieved its saturation point in the city, however demand for smaller cluster led schemes still appears to be prevalent.”
David Feeney, Advisory Associate at Cushman & Wakefield, commented: “It is encouraging that the student accommodation market continues to flourish despite initial concerns following the EU Referendum and the impact of increased student tuition fees. However, in a number of cases studio development has been driven by higher prices rather than by true student demand, which now risks oversupply. En-suites and shared rooms provide a cheaper bed and more of a social experience, with communal and shared spaces.
“There is a real opportunity for developers to meet the demands for more affordable accommodation and provide more standard or en-suite rooms for students. Studios are 45% more expensive but do they offer a 45% better experience? It is all about the value of the experience and this will increasingly drive students’ preferences for accommodation.
Student numbers vs. Fees & Brexit
More students than ever (1.04m) are studying away from home meaning the demand pool for accommodation continues to grow. Full-time student numbers are now 4% higher than in 2012/13, when maximum tuition fees rose to £9,000 per year, and continue to drive growth in the sector. Higher-tariff universities grew enrolments by 1%, with medium-tariff institutions growing by 2%, proving that despite some concern about the impact of the Brexit vote on student numbers, there remains considerable demand for new accommodation.
In terms of the investment market, final recorded transaction volumes in 2016 of £4.1bn were the second highest total on record but well below the 2015 total of £5.7bn. Transactions in 2017 to-date are ahead of this time last year at £3.61bn (£3.25bn in 2016) but unlike 2016 there is a further £1.05bn under offer and £1.5bn in the market, double the totals for last year.
David Feeney continued: “The UK is still a global education hub, attracting the best students from around the world. Even with Britain’s exit from the EU progressing, the relatively weak Pound has attracted additional applications from non-EU students, with their numbers rising 5% over the last year. It is a key market, as 23% of the UK student population is now from overseas.
“In funding terms, foreign students have a much greater impact on the income profile of UK universities, making up 26% of all tuition fee income. It is clear that the UK remains a highly attractive place for students to study and this continues to be reflected in the growing student accommodation market. The sector will continue to prove attractive to investors and if developers are able to meet student demand for en-suite rooms, rising student numbers will provide suitable and reliable returns.”