The student accommodation sector has enjoyed great success over the last decade, riding the growth of the UK higher education sector more generally. Just before the lockdown there were estimated to be about 115,000 rooms in the development pipeline across the UK, which demonstrated a continued confidence in the sector. The immediate future of the student accommodation sector is of course dependant on what’s happening in the Higher Educaton sector, which we hadn’t heard much about until the last few days.
So what’s currently happening and what’s predicted to happen?
- Every institution is currently teaching remotely, although reports are very mixed about how well that is going, with some students reporting virtually no teaching at all on some of their courses.
- No current year student has returned to campus and universities have taken the understandable decision to waive the current term’s rent – which students would have to pay ordinarily. It is common for Universities to have nomination agreements with third party operators to supplement their own accommodation, and there will be some fallout from this decision because in many cases the University will underwrite the rents of the rooms.
- Universities have already lost c£600m in commercial revenues from their summer businesses, a vital component of the revenue streams for a significant number of UK universities.
- The expected biggest impact will be the fall in overseas students – the numbers of overseas students has grown by 25% over the last 5 years with both China and Russia contributing the biggest overall increases. The revenue from all overseas students is £6 billion (on average overseas students pay three times the rate for a domestic student). The government have now been clear that there won’t be a support package for this lost revenue but it will accelerate the payment of tuition fees later this year (paying approximately £2.6 billion in a single instalment in the Autumn) to assist cash-flow, there are also a set of measures announced to stabilise student numbers and to try and reach some balance between institutions: You can find the details here.
- Universities are also drawing up contingency plans for a phased return to face-to-face teaching with STEM students being prioritised and arts and humanities students not returning until January – but with no adjustment to the academic year. This is just a contingency plan at the moment but if it does happen, then this is likely to cause a substantial number of prospective students to defer their studies for a year if they are unable to access the full social and cultural university package (as a recent small scale survey suggests one in five might defer).
- In addition, as and when universities do return to face to face teaching, it is likely that all universities, managers and operators of student accommodation will have to consider and implement a range of measures and restrictions to account for all required social distancing measures. While that may have a bigger impact on the operation of traditional halls of residence, it could also have an effect on the volume of rooms and beds that private operators and managers can let to students while social distancing measures are in place.
- If the easing off of lockdown measures to be announced by the UK government in the next few days follows that of Ireland and other European countries, that return to face to face teaching looks likely to resume in September 2020 for most institutions. If that proves to be the case, in that context at least, this looks to be a one term issue.
For the student accommodation sector, these last points will impact demand for their rooms for the upcoming academic year 20/21 and there may be a longer term impact on demand if overseas student numbers do not pick up – online degrees at substantially reduced fees are already being mooted. The sector may contract, but the operators with the better offering, better reputation, more innovative service delivery and (crucially) the better locations will thrive.