Student accommodation can be split into 2 categories:

  1. Purpose Built Student Accommodation (PBSA). These tend to be large modern blocks with 100+ beds aimed at international students.
  2. Private Student flats. These tend to be tenement flats and houses surrounding Universities. These were the norm for students after first year halls to live in till as recently as a decade ago and are still favoured by non international students.

This blog discusses PBSA.

Pre Covid

Over the past decade student accommodation has graduated into an investment grade asset class, with global investment volumes rising from £3.5bn in 2008 to £16bn in 2018. Blackstone’s purchase of IQ Student accommodation from Goldman Sachs for £4.7bn in February 2020, the UK’s largest ever private real estate transaction (FT, February 2020), may well signal the high water mark in the UK’s Purpose Built Student Accommodation (PBSA) boom.

Blackstone was betting that the UK Universities would continue to attract more overseas students (see chart below) and was a mark of confidence in the UK government’s goal, announced in March 2019, of increasing international student numbers by a third.

Source: Unesco Institute for Statistics, FT (April 2020)

What impact has Coronavirus had on PBSA in the UK?

The investment case for PBSA is now severely undermined. Since the lockdown was announced by the UK government in March, all UK universities have closed, with many foreign students returning back to their homes abroad.

More than 111,000 applicants (roughly one in six students) who were due to start their degrees this Autumn now want to take a gap year and wait until 2021 when campuses are more likely to be fully open (The Times, April 2020).

The British Council expect Coronavirus’s impact on International students to be even more stark, with one third of Indian and Pakistani students who had applied to study abroad next year have now changed their minds, while The Guardian (April 2020) has reported that 40% of international students are considering changing their study plans abroad.

Which Universities and Cities will be most affected?

Universities with the most international students are likely to be hardest hit. The chart below shows International and EU students enrolled at UK Universities in 2017/18.

What impact will the reduction of International students have on these University Towns?

As well as leaving a huge black hole in these universities finances (Edinburgh Evening News, May 2020), there will be a large number of institutional investors who are likely to have empty student rooms with little prospect of filling them all next academic year.

More Opportunities ahead?

  • Decreased weekly rents for PBSA?

Due to the decreased number of international students expected to enlist for courses in the UK, I expect there to be a decrease in weekly student accommodation rent, as competition to fill PBSA blocks heats up. This is good news for students, who have seen accommodation costs rise by nearly a third in six years (BBC, December 2018). However, it will leave many institutional investors with large holes in their cash flow as incomes will be severely below forecast.

  • Singapore and South Korean Universities set to boom

If international students continue to shun UK universities, as Simon Marginson (FT, April 2020), professor of higher education at Oxford University believes they will, he thinks this is likely to benefit Universities in Singapore and South Korea – who have invested heavily and are strengthening their reputations.

  • More homes for first time buyers?

It is likely that as the institutional landlords find they have large holes in their cash flows they will try and off load PBSA Blocks. These buildings would lend themselves well to serviced accommodation blocks or hotels, however the market for travel is severely impacted too. Perhaps they could be repurposed to residential to provide much needed starter homes for first time buyers?

What next?

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