The UK has long been an attractive place to study university degrees, managing to retain domestic students taking the step up to degree level qualifications whilst drawing in students from overseas looking to relocate in order to study at university. The number of universities across the UK, including in major cities, wide-ranging course options, and the quality of the universities themselves with the UK being renowned for having some of the world’s best universities, help explain the lure of studying in the UK.

Like any other economic market, an assessment of the fundamentals of the UK’s Purpose-Built Student Accommodation (PBSA) market is necessary for any participant in the sector to understand viability and decide on approach. In a report issued by Savills on 9 May 2023[1], Savills suggests that demand for PBSA remains strong owing to a number of key reasons, including continued growth in the student population.

The latest student population figures for the 2021/22 academic year issued by the Higher Education Statistics Agency illustrate that the number of full-time students rose by 4%, to over 2.26 million. Additionally Savills suggest that the number of full-time undergraduate students will rise to 1.75 million, up from 1.73 million at the start of the 2021/22 academic year. Paired with continued growth from students outside of the UK and challenges within the houses in multiple accommodation (HMO) sector (including increased taxation and additional regulation) reducing alternative accommodation[2], the demand for PBSA stock remains high.

If demand remains high, can the supply (both in the short and long-term) for PBSA stock withstand this pressure? In a report issued by Knight Frank issued in 2023[3], their analysis of the development pipeline indicates that overall there are 95,000 new bad spaces expected to be delivered over the next two academic years.

This pipeline falls short of student requirements, particularly in the most sought-after universities and surrounding areas. For example, Knight Frank comment that in areas where growth has been historically strong such as Bristol and Manchester, “over the last five-years for every new bed space that has been added to supply each year, three more additional full-time students have been added to the population”[4].

In the context of other pressures that face property development generally – including the rise in energy costs, construction costs and struggles with the planning system – it is likely that PBSA supply will continue to be dwarfed by student demand.

[1] https://www.savills.co.uk/research_articles/229130/346721-0

[2] https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2023/student-accommodation

[3] https://content.knightfrank.com/research/169/documents/en/uk-student-housing-2023-9846.pdf

[4] https://content.knightfrank.com/research/169/documents/en/uk-student-housing-2023-9846.pdf

Whilst these general trends are a helpful steer for property developers within the PBSA sector, it is important to understand the micro-markets within the same. There are for example some student areas in the UK where the supply v demand battle is not so strongly weighted in favour of further PBSA development and other areas where there is an even stronger argument for new PBSA stock.

By way of a case study, Durham University – a top ranking Russell group university – has been widely publicised as a student area that is facing a student housing crisis. Last year, local news outlets reported that students had to “sleep on the streets” to secure housing for the 2023/24 academic year[1], which offers useful context as to the university’s high ranking as a PBSA development hotpot. By way of comparison, Sheffield – a city with over 60,000 students – has in recent years raised concern via its planners and local universities that the local PBSA market is reaching saturation or, in some views, is already saturated. A nuanced analysis of the PBSA market is therefore essential in ascertaining development strategy.

[1] https://www.thenorthernecho.co.uk/news/23073781.durham-university-student-housing-crisis-worsens-students-queue-overnight/

The key points highlighted above in relation to growing demand and lack of supply all contribute to strong growth within the PBSA sector and have helped to ensure it remains an attractive development and investment opportunity. Zunikh has a great deal of experience in PBSA. Its skilled management team and highly experienced professional team are able to take full advantage of the opportunities that exist in the PBSA sector in the UK.

 

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By Sean Gough
Chief Commercial Officer