Sector Focus Bulletin

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Watts Sector Focus Bulletin - Higher Education

The last 12 months has been testing a time for the higher education sector. Uncertainty over funding and university budgets has made estates expenditure decision-making increasingly challenging. Estates directors are forced to persist in what must now feel like a never-ending balancing act between maintaining existing stock, improving buildings to enhance the student experience and responding to government directives on sustainability and carbon reduction. In this special edition of the Watts Bulletin we look at some of the current issues and initiatives impacting the HEI market and offer some pointers to those universities and colleges planning new projects for the 2012/13 academic year.

Robert Staton
Watts Group PLC

Watts Sector Focus Bulletin - Higher Education

Fall in university applications poses no threat to accommodation providers

A report from UCAS at the end of January confirmed that applications for full-time higher education are down by more than 7% on 2011. However, despite lower numbers of applicants, demand for places will still exceed supply.

HE Sector Focus (March 2012)

As other construction sectors have faltered in the face of a harsh economic climate and nervousness among investors, the university accommodation sector has shown itself to be recession-proof. According to UCAS, concerns over increased university tuition fees are fuelling a fall in applications for higher education. However, the fact that UK universities and colleges will remain oversubscribed for the 2012/13 academic year is good news for accommodation providers as strong demand and lack of supply work in their favour.

Recent research from CBRE estimates that nearly £8.5 million was invested in the UK student accommodation sector in 2011 – double the amount invested in 2009. Far from disadvantaging the sector, the increase in tuition fees is expected to have little impact in the short term. The latest student property report from Knight Frank concludes that it will only serve to strengthen demand for student accommodation at the best universities.

James Pullan, head of student property, told Overseas Property Professional in January: “The winners from the new tuition fees regime will be the most prestigious universities amid a flight to quality as students search for the very best course available for their fees. The losers will be the least prestigious institutions offering commercially unattractive degrees.”

This view is backed by accommodation provider Unite, which estimates that only 23% of the circa 1,328,000 full time students seeking accommodation in the UK are currently housed in university or corporate purpose-built accommodation. The balance are housed in the private rental sector. With the number of first year and international students – all ‘guaranteed’ accommodation by their university – continuing to outstrip available university beds by more than 2.5:1, a valuable target market remains for accommodation providers.

According to Knight Frank, total student accommodation returns almost doubled in London to 15.1% in September 2011, taking average total returns to 11.5%. The most popular rooms were those with rents set at less than £220 per week. Elsewhere in the UK, yields fell from 14.6% in September 2010 to 10.5% in September 2011 (Source: OPP).

James Pullan’s advice to investors is to focus their activity on regional towns with a high density of students. However, Unite reports that the majority of its future student accommodation construction activity is currently planned for London: “While there remains significant headroom in some regional cities, a lack of capital among universities and private providers and the challenging planning environment is likely to render future supply activity outside London more modest.”

For more information contact Daniel Webb, director at Watts Group PLC, on 020 7280 8078.

Do you agree that university accommodation providers are recession-proof? Get involved with the debate on Watts’ Twitter page @Watts_int or join the Watts Bulletin group on LinkedIn.

The Watts Bulletin is the technical companion to the Watts Pocket Handbook, the essential guide to property and construction, as used by professionals since 1983.

Watts Bulletin editor: Trevor Rushton.