(Or, why students get the halls they want but can’t afford rather than the ones they don’t and can.)
David Tymms is a strategic advisor at QX Global. He previously held roles at London School of Economics as Director of Residential Services and at iQ Student Accommodation as Commercial Director.
Student Numbers
The number of full-time university students has grown rapidly in recent years according to the Higher Education Statistics Agency (HESA), rising by nearly a quarter in the last half decade to 2.36 million in 2022/23. Figures have risen most for students who are typically the main drivers of purpose-built student accommodation (PBSA) demand. Since 2014/15, the number of full-time international students has risen 81%. As a result, core demand – first-year UK undergraduates, international undergraduates and all postgraduates – now accounts for 61% of the UK’s full-time student population, adding additional pressure on the sector to deliver purpose-built housing.
Unmet core demand (‘000s)
Source: JLL; HESA
Changing wealth profiles
In recent years, there has been a significant increase in participation rates from lower-income households as widening participation strategies begin to bear fruit and tuition fees continue to fall in real terms (the recent inflation uplift notwithstanding). Despite considerable noise about access to HE in the UK, data shows the two lowest quintiles of household wealth have seen the highest rates of growth in student numbers over the last five years, with the figure from the most deprived quintile rising an impressive 29% between 2018/19 and 2022/23. In that same period, the number from the least deprived quintile grew by just 2.4%. International patterns are also changing as growth from China slows and lower-income students from the Indian sub-continent and elsewhere come to the fore.
Full-time domestic students by household wealth, England
Source: JLL; HESA
The Decline in Applications
Nevertheless, new hurdles seem set to slow several years of unabated growth, particularly for international students. Visa restrictions introduced in January 2023 bar most from bringing their families to the UK while Nigeria, recently the third largest international student cohort in the UK, faces a currency crisis that may continue to impact applications in years to come. Sponsored study visa applications from January to October 2024 (350,700) were 16% lower than for the same period in 2023. With the Universities and Colleges Admissions Service (UCAS) also reporting a small fall in undergraduate applications, the various data sets point to a tough period ahead for UK HE.
New Build PBSA Viability
PBSA, in common with other real estate sectors, has been heavily squeezed by rising construction, raw material, financing and regulatory costs, including the new Building Safety Act. Today, delivery in all but the highest value markets (min. £200pw+) remains, at best, challenging and in most cases unviable, thereby excluding many university towns and cities.
University of Bath PBSA Study
So what does this changing student demography and tightening development viability mean for PBSA, where falling levels of new scheme openings have resulted in a record core demand level of 61%?
Jones Lang Lasalle (JLL) worked with a group of business students at the University of Bath to better understand the PBSA priorities of those studying in the UK.
How would the following affect your decision in choosing student halls?
Source: JLL; University of Bath
The research demonstrates that students still prioritise a single occupancy room with en suite bathroom. Twin rooms scored very poorly and only one third of students actively favoured catered accommodation. The results also confirm that students prefer ‘cluster flat’ accommodation types over studios and smaller apartments (4-6 sharers) over large. However, only 29% are prepared to pay more than £200pw.
University Partnerships – The Opportunities and Challenges
So how does the sector square the circle of delivering more viable – and thus affordable – room types given the clear evidence of students’ perceived priorities? Twins, non en suites, larger cluster flats and catered accommodation all provide potentially many more beds per land parcel. The Bath survey and other research, including by Student Crowd, is clear that these remain unpopular with students so we should be unsurprised developers and operators of ‘direct let beds’ generally build to these perceived priorities.
Historically, one approach to increase PBSA density, and thus viability, has been university partnerships. This route sees occupancy either partially or completely de-risked for the accommodation provider. However, developing university partnerships can be challenging given the financial constraints in HE, the balance sheet treatment of such agreements and currently volatile student numbers. The Office for Students (OfS) recently forecast that 72% of institutions could have a deficit in 2025/26. Nevertheless, recent examples such as Unite Group’s deal with University of Newcastle and Urbanest’s with UCL, amongst others, show these challenges can be overcome, although examples are rarer for post-92 institutions. As Martin Blakey concluded in his recent HEPI Blog – Student Accommodation after 2024 and the Need for Strategic Realignment – ‘growth in student numbers no longer necessarily equates with the need for additional PBSA student bed spaces as has been the case over the last 20 years: future needs are changing and future accommodation provision cannot, for a whole variety of reasons, be more of the same’.
Conclusions
The ‘direct let’ operators of PBSA, who dominate the UK market, face a challenging period ahead as they wrestle with development viability in all but a handful of markets and where their standing assets in some locations are becoming overpriced. If the PBSA sector does not evolve, it risks forcing the fast-growing, lower income, domestic student population into different rental sectors (or to commute) and potentially damaging access to UK universities from emerging middle-income countries.
This blog could not have been produced without the kind assistance of Marcus Dixon and Karl Tomusk at JLL.
To download the full report please click here.