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  • james08339

Optimistically worried – reflections from chairing the LD Events conference on 14 May 2024


This year, my opening remarks to the conference were around how easy it was to pick out certain data to suit either a rosy or a bleak view of the future. I left the conference feeling ‘optimistically worried’, but there are still some significant issues ahead.


The conference coincided with the Migration Advisory Committee’s recommendations around the graduate entry visa, which were released at around 10am. A collective sigh of relief was evident with the clear recommendations to government to leave things as they are and to ensure that standards are upheld through a scheme to register agents recruiting international students. All that remains now is to see whether government will accept or reject the recommendations.


On the home front, the increase in the number of 18-year-olds continues, but the debates rage on over whether participation rates in higher education will remain as high and whether students consider the cost of a degree as value for money. The high inflation environment and cost of living increases over the past couple of years and the financial squeeze that resulted has certainly increased the number of commuting students at many universities.


Post-conference, Office for Students published its Financial sustainability of higher education providers in England 2024. It says that if all providers’ forecasts for future recruitment were to be achieved, the sector would grow home students by a quarter and international by a third by 2026/27. While in the long term this would be great news for the student accommodation sector, it would also mean a massive shortfall in accommodation given the inability to impact the delivery pipeline for 2026/27. What it probably means in reality is that universities need a credible ‘Plan B’ to ensure their financial sustainability. It also means that they probably don’t have capital budgets to either refurbish or develop new accommodation or have the balance sheet headroom for hard nominations or leases on accommodation. I think this paves the way for strong demand for more private sector partnerships and innovative delivery structures.


I made another comment in my opening remarks that the ‘children’ (i.e. the student accommodation buildings) appeared in good health, but that their ‘parents’ (the universities) had some issues, and that these issues might be genetic. Universities are facing increased costs and frozen tuition fees for home students. Many are entering into voluntary redundancy schemes this year. However, according to the OECD, UK higher education remains the third highest globally in terms of cost per student, so I think the prospect of tuition fees increasing is slight given the other pressures on the public purse.


At the same time, the development economics are far from compelling across the UK with one slide showing only six cities where current rents can support viable new PBSA development. There was fair optimism that there would be base rate cuts before the end of the year which would help here but it’s clear new supply will continue to be constrained in many cities without some movement in financing or construction costs.


The flip side to the doom-and-gloom around international numbers, development costs and the financial wellbeing of universities is that the demand / supply imbalance remains high in many cities, and occupancy remains strong. In most markets, demand exceeding supply drives price so the medium-term position for rental growth remains strong. However, what students can

afford is not unlimited, and this will start to act more as a brake on rental growth in some markets.


The impact of the Renters (Reform) Bill on the already reducing numbers of HMOs is not clear. The data for this sector is opaque at best, and the picture is further confused by a lack of data on the number of students in studios, one- and two-bedroom flats or build-to-rent / co-living schemes. It seems likely that the notice provision proposed under the current drafting of the Bill will result in change. Whether that is a change to the number of rooms that will be let to students, or the structure of student lets, only time will tell. My prediction is that it will be a combination of both, with private landlords exiting the sector and new structures emerging. We could see, for example, tenancies that roll from 1 June to 31 May for returning students, or ones that have nine months’ rent with three months’ rent free. I also think we will see more corporate investment in this part of the sector under structures where debt costs are still deductible.


A not-impossible series of events could see international and home student numbers growing, the number of private lets shrinking, and the sector being left having to manage a cohort of returning students who have severely constrained accommodation options, all of which would push demand for PBSA even higher. Similarly, we could see declining international numbers and more students opting to live at home, and the demand / supply imbalance improving for the student - but obviously not for the investor. I can’t see universities having the available capital to act to provide more accommodation, and even if they did have, acting fast enough to effect any quick changes. Once again, the situation points to a need for more university / private sector partnerships.


Over dinner the night before the conference, I commented that we just needed to make students richer to be able to reach rents that made development viable and improved the accommodation options. It was meant to be flippant, but I was only half-joking. One of the conference slides showed that students typically need £8,000 per year more than they can access under the maximum grant to be able to afford a modest student experience. Surely, the only way to impact this is to increase the amount available to borrow under the student loans and let the market find its equilibrium around where the point students decide affordable rents sit and relative value within the range of costs at university. The only answer to affordability at the moment seems to be that students have to take on more and more work on top of a full-time degree to be able to afford to go to university unless the ‘Bank of Mum or Dad’ is making up the difference. That is not a sustainable long-term model and, as the Student Crowd student interviews showed, potentially does not result in a value for money proposition if a student’s experience is affected by needing to work alongside study, to enable them to afford to go to university.


Planning and ESG remain issues high on the agenda. How we can speed up planning seems to be a question on everyone’s lips. Also, where is the balance around retaining the embedded carbon and improving existing buildings versus demolition and redevelopment? There is undoubtedly a link to the university and student pleas for more affordable accommodation and ensuring these buildings can have an extended life without trying to compete head-on with brand new highly serviced accommodation.


A whistlestop tour around the European markets was interesting to demonstrate the different provisions and decisions facing investors who are looking outside the UK for value. It seemed clear that the maturity of those markets will evolve as new supply occurs but will be reliant more on the international appeal of those countries to English Taught Programmes as the majority of

the PBSA supply seems clearly aimed at the more affluent international student with domestic provision either state provided or not at a viable rental level.


My views are that in the short term, the demand / supply imbalance will remain with demand increasing ahead of supply. This will put upward pressure on rents which will increase viability and encourage development. Ultimately, the position in five years is likely to be one where international demand drops below previous projections but not as much as feared, home numbers grow a little but so do the number of students studying from home, there will be fewer HMOs available for students and the sustainability and affordability agenda combine to drive more repurposing of existing buildings.


More and more partnerships are inevitable. In my view they will evolve further and we will see new partnering models. The time and cost required for the DBFO processes and the number of universities deciding to cease being contracting authorities under public procurement might encourage some universities towards different models such as Newcastle University’s JV with Unite. The best of these models will combine the student care and student experience know-how and planning support from the university with the design, development management and established supply chain of major private sector providers, with long-term affordability being a key driver.

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