A Levels U-turn; Good or Bad News for PBSA?
Pippa Lane, Investment & Asset Analyst
The Government’s U-turn on A-level and Highers results and subsequent abolishment of student number caps and course caps means many universities previously worried about the impact of Covid-19 are set to have a record number of students for this year’s cohort. However, it is not all positive news with some lower tariff universities set to miss out, putting them in significant financial difficulty. For the PBSA market, however this presents an opportunity to increase occupancy amidst international student number uncertainty.
After a week of turmoil for many A-level students receiving unexpected grades, 40% of which were downgraded as a result of Ofqual’s algorithm, the Government’s decision to U-turn A level results decisions was welcomed by many.
The U-turn decision, late in the day, which universities were not consulted on, has resulted in there being an increase in the number of students with grades to match the offer of their first choice university.
However, many of these students have been rejected from their first choice and their places offered to other students. Additionally, students who have selected a university place via their insurance offer or via clearing, now risk leaving those universities in financial jeopardy as students look to take places at preferential universities.
So how do universities navigate this decision? How do they accommodate the new surge in enquiries from students initially rejected but ultimately now have the grades? And how will lower tier universities cope losing vital students? Above all, what does this mean for the PBSA sector?
Alistair Jarvis, chief executive of Universities UK and Dr Tim Bradshaw, chief executive of the Russell Group have both conveyed how this U-turn significantly challenges Universities in terms of capacity, staffing, placements, and facilities – stretching resources to the point that it undermines the University experience. Additionally, in light of the Covid-19 pandemic, when the onus is on universities to keep students and staff safe and implement social distancing measures, Dr Tim Bradshaw argues there are limits to what the University sector can do, with The Independent reporting that some universities only have rooms with only 20% capacity as a result of required Covid-19 social distancing measures.
Not that simple just to increase capacity?
The Government’s expectation for Universities to just increase capacity as much as possible to accommodate affected students was met with a high degree of frustration by many universities who are capped by course, facility and staff restrictions. With UCAS reporting that 69% of students were offered their first choice institution, a higher proportion than the same point last year, the Government’s decision to lift the cap on student numbers to allow universities to accept as many students as they like sounds like a good idea (instead of penalising universities as set out in March to combat the impact of Covid-19), however this is limited by physical restrictions.
To assist Universities, the Government has now increased funding for certain restricted courses such as medicine and dentistry but this does still not address concerns about staying Covid-19 compliant, with many Universities restricted on the number of places due to need to provide one way systems and social distancing in teaching rooms, libraries and catering outlets.
With additional funding on certain courses and unrestricted student numbers, many universities have now said they will honour all offers where practically possible, either this year or next or look to place students on alternate courses. This will however have a knock on effect on the opportunities for next year’s cohort.
Expect to see more of an impact on ‘lower tier’ universities?
The latest figures from UCAS indicate positively that acceptances from UK students have risen by 2.6% from 2019, whilst placed students from outside the EU have grown by 3.3% (with an increase of 15.6% in Chinese students). However, acceptances from EU students have declined by 8.5%.
Concerningly although unsurprisingly, growth of students remains uneven across universities, StuRent reports. The most prestigious institutions have reported year-on-year growth in acceptances of 6.3%, compared to a fall of 0.2% for those deemed as lower tariff providers. Isolating non-EU students, higher tariff providers have reported an increase of 9.7% in 2020, whilst medium and lower tariff providers have reported declines of 9.3% and 6.0% respectively. Overall, this increase in higher tariff acceptances means almost a third of students (34%) are set to study at these higher tariff universities, continuing the trend of a flight to quality seen over recent years.
The Government announcement to allow UK students who have accepted offers based on their downgraded results, to release themselves if another offer is reinstated based on their updated grades presents a further challenge to less prestigious universities who are already suffering from a decline in international numbers. Mary Curnock Cook, former head of UCAS, predicts that up to 55,000 students could try to switch to their first-choice causing potential chaos.
This, coupled with an unlimited cap on student numbers, will result in lower tier universities facing significant financial pressures and any impacts to student numbers and finances this year will be felt over the next 3-4 years. As a result, many UK universities and supporting bodies are demanding government support and funds to support institutions facing crippling financial shortfalls.
Not all bad news for Student Accommodation providers?
One of the biggest concerns since Covid-19 brought the world to a halt, closing universities and sending students home, is whether domestic and especially international students would return to campus for the new term with uncertainty surrounding whether campuses would fully re-open, hybrid teaching and restrictions on overseas travel.
Despite, overall international student numbers being down by approximately 5% this year, student accommodation providers concerned about occupancy levels as a result of Covid-19 should be encouraged by the requirement to increase university capacity where possible.
As many universities guarantee accommodation for first year students, an increase in student numbers is positive. This increase will potentially result in some universities having an undersupply of accommodation and they will look to third party providers to assist them in accommodating the surplus. Although the demand for PBSA accommodation will vary region to region based on the balance between the demand and supply of accommodation, operators should look to optimise this opportunity to maximise their occupancy levels.
PBSA operators are not out of the woods yet as there is still a risk that international students will fail to show at the start of term, especially if a second Covid wave occurs. However, the increase in domestic student numbers may help to ease this gap.
PBSA operators who have assets serving lower tier universities or who are reliant on the clearing period are likely to suffer more as a result of this U-turn as students seek to attend their first place options or an alternate university if their grades are better.