Application trends

At this time last year, we reported on the prospects for the student housing sector in the wake of some very big changes in Higher Education. Some in the industry were concerned that the possible withdrawal of funding for some institutions and the raising of tuition fees would affect student numbers and demand for accommodation.

While our analysis did suggest that there were both potential winners and losers as a result of these changes, overall it does not appear that the student housing sector will be adversely affected as a whole. Indeed, underlying lack of supply in the face of continued demand seems set to sustain investment returns in the foreseeable future.

Although applications by potential students for undergraduate Higher Education places have fallen, this has not been significant in relation to the number of places available.

Headline figures as reported by UCAS (May 2012) have shown a fall of 31,665 UK applications from students aged between 18 and 20, or a 6.7% decrease since the previous academic year. This fall in full-time undergraduate student applications for the 2012/13 academic year, compared to the same stage of the previous years application cycle, has been attributed to the rise in tuition fees by many commentators.

Initial sentiment among investors, developers and operators of UK student accommodation as a result of these headline figures would seem to be one of great concern. They needn’t be.

The indications are that demand for Higher Education, even in the face of significant increases in tuition fees will continue to outstrip the number of places available in 2012. Total applications for the age groups of 18, 19 and 20 (the age bracket which accounts for over 75% of all applications) are already 91,200 ahead of the number of degree acceptances in 2011 for the equivalent age bracket. This is without taking into account further applications received before submissions close.

Population projections from the Office for National Statistics (ONS) suggest that this fall in overall youth student application numbers could have been predicted and is not linked to a rise in costs of higher education.

The national population projections are not forecasts and do not attempt to predict the impact that new or future government policies, changing economic circumstances or other factors might have on future demographic behaviour. The national population projections calculate future numbers of births, deaths and migrants. They show a continuing downward demographic trend in total numbers of 18 to 20 year olds across all regions of the UK. A decrease of 47,000 was projected between 2011 and 2012, a fall of 2% and a further fall of 53,000 is projected over the current year.

Analysis of UCAS published application rates for 18 year olds, which takes into account these population changes, highlights only a slight fall of one percentage point across England since the previous academic year (see Graph 4). This fall takes applicant levels back to 2010 levels and the data paints a static picture for the rest of the UK. In other words, rising tuition fees have had a diminutive impact on potential university students who might see rising domestic youth unemployment as an inferior alternative.

It is the demographic changes which should bear further scrutiny by student housing providers. By 2020, the cumulative fall in the UK population aged 18 to 20, (the demographic which inhabits the majority of UK purpose built student accommodation blocks), is projected to decrease by 358,000, from a recent population high of 2.48million in 2010.

This has the potential to negatively affect domestic university application totals and domestic student accommodation occupancy rates over the forthcoming years in some of the less popular institutions. Having said this, demand for accommodation is not solely reliant on this demographic as postgraduates and overseas students are also a major source of demand.

The UCAS analysis shows that overseas student application numbers have held steady. Non-European applications increased by 5,106 applications – growth of 10% (May 2012). This figure was however negated by an equivalent decrease in applications from students originating from within European Union nations.

The reason for investors, developers and operators to remain positive is that this increasing non-European demographic inhabits the second largest tranche of purpose built student accommodation, at values often above the domestic market.

Institutional performance

Since our last report where Savills Research analysed the potential winners and losers from the Browne Review, the Higher Education sector has now entered its period of financial and policy change.
The analysis (Graph 5) shows which institutions have remained in demand and which institutions have as a result of a number of differing factors fallen in popularity. The graph analyses UCAS undergraduate applications for the forthcoming 2012/13 academic intake, compared to the previous three-year average at the same stage of the application cycle.

The analysis immediately highlights the positive demand, from both domestic and international students, across the majority of Scottish institutions (labelled as red). The Scottish Government has not followed the Westminster Government and has resisted charging Scottish students tuition fees when studying within its borders. The only exception is The University of Edinburgh, which has seen domestic (GB) applications reduce, possibly as a result of domestic students outside of Scotland having to pay higher fees to attend the prestigious university on a typical four-year course.

Taken from
Spotlight: Student housing, Summer 2012