The supply of purpose-built student accommodation has increased in recent years, as both student and investment demand have been strong. The sector now houses a third of all full-time students in over 550,000 purpose-built beds. However, despite the recent growth in the sector, supply in many towns and cities across the UK is still failing to meet demand.

The demand to supply ratio can be useful as a headline indicator, as shown by the map below, but it is not perfect. The optimum ratio for each town or city will depend on the characteristics of the local market including the demographic profile of the students, the provision of university residences, and the size and strength of supply and wider demand in the private rented sector.

These differences extend to development where it’s even more important to assess the overall quality, mix and location of competing stock to ensure that the product is appropriate for the micro and macro location of the site.

^{Source: Savills Research, HESA} 

CLIENT VIEW – Unite Students

Managing build cost inflation is a key challenge for Unite. Build costs tend to account for between 60% and 90% of total development costs so, if inflation is not managed, margins can be eroded. Unite leverage their 8,000-bed development pipeline to help offset some of this risk by partnering with a small number of contractors who value the steady and consistent workload. These long-term relationships enable Unite to involve contractors at the beginning of projects where they can add valuable input into the design stage.

Unite are keen to invest in London, but cluster led development is unviable due to higher competing use values. The situation is made more difficult by local Boroughs and the GLA penalising student accommodation with high CIL rates and affordable housing or bursary contributions. These burdens reduce student accommodation development in London and will contribute to continued upwards pressure on rents as student numbers grow. Nick Hayes, Development Director

City Case Studies

BATH

Bath’s supply of purpose-built accommodation has increased in recent years but, with a demand to supply ratio of 2.5, around 60% of the 19,600 full-time students who attend the city’s two universities have to find a bed elsewhere.

With only 2,000 beds in the pipeline, there are opportunities for development. However, the biggest challenge for developers is the high Community Infrastructure Levy (CIL). At £200 per square metre, this is the highest rate for student accommodation outside of London and double the local residential CIL rate. This rate has a negative impact on viability and makes achieving a competitive land value more difficult.

There is a need for more affordably priced family housing in the city and the high CIL rate may shift development towards residential. However, there may be unintended consequences as high-density residential schemes risk becoming student accommodation via the private rented sector. A more balanced approach is required.

▲ Green Park, Bath is one of the few successful examples of PBSA of scale being delivered in the city. The highly specified redevelopment of two buildings in a prime location will offer 461 beds for use by Bath Spa students from September 2016.

LIVERPOOL

Liverpool has a relatively large supply of purpose-built student accommodation, with over 20,000 beds available in university and private schemes. However, with 2.1 full time students for every bed, there are still opportunities for development in the right locations in the city, especially given the generally lower quality offering in the private rented sector and limited supply of this stock.

The challenge for developers and operators in Liverpool is creating a product that delivers a positive land value after construction costs while meeting their target returns. With affordability constraints and plenty of competition, there is a ceiling on rents in the market.

Successful schemes are therefore reliant on maximising the rent generated per developable area and creating economies of scale in management. A typical solution includes increasing densities by developing smaller cluster flats, while most schemes are held for long term income streams rather than capital uplift.

▲ Tara House & Leece Street, Liverpool are two adjoining development sites bought by a leading student developer and operator. A 790 bed scheme is under construction which will target a range of rental price points.

LONDON

The issues facing developers of student housing in London reflect the broader challenges facing all real estate developers. The capital has a massive need for more homes, more commercial space, and more student housing but a continuing scarcity of developable land. London currently has around 3.2 full-time students for every bed and, although there are 17,000 beds in the development pipeline, this would only improve the ratio to 2.6.

With a constrained supply of land, the challenge is achieving a land value that is competitive with other use classes. In recent years there has been a drive towards premium student housing in central London and outwards into lower value markets.

However, it is increasingly difficult to compete in Zones 3-4 as high house prices spread outwards and residential developers outbid student developers for land. This will continue while the residential development market remains strong and so student developers will push further out along transport routes and towards higher densities.

▲ Stapleton House, London is a successful example of when student developers were able to compete for land in a strong zone 2, central London location. The 862 bed scheme will complete for the 2016-17 academic year.