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Brexit Uncertainty Shows No Effect On Student Accommodation Investments

Brexit Uncertainty Shows No Effect on Student Accommodation Investments

Purpose built student accommodation (PBSA) investments have been wildly successful with investors across the United Kingdom as well as those overseas. The demand for student housing has been growing over the past couple of decades as student numbers increase and the modern student demands high-spec living quarters with all the mod-cons. This has made PBSA one of the best performing asset classes for residual profits and long-term returns.

As the number of students in the UK increases dramatically, the demand for student accommodation also increases and despite the current worries and uncertainty around Brexit, the numbers of students applying for UK universities is holding steady and even increasing in some sectors.

The questions around the effects of Brexit leave many investors lost and discourage new investors from choosing a student accommodation investment. However, recent research has shown that these fears are misplaced as Brexit doesn’t appear to have affected student numbers and certainly has had no negative effect on the level of student accommodation investments.

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Trends in Student Numbers Pre-Referendum

The statistics show that there has been a steady increase in student applications to educational institutions in the United Kingdom, causing university location hotspots to flourish. Despite the 2012-13 increase in maximum level tuition fees from £3,290 to £9000, the numbers show that school leavers still have an appetite for full-time higher education.

According to UCAS (Universities and Colleges Admissions Service), data students were rushing to beat the imposition of the tuition fee rise and as a result, the number of student applications rose from 408,000 to 465,00 the year before the fee changes were implemented.

Research published by UCAS showed that four weeks after A-level results were published in 2013 – the year after the tuition fee rise - the number of UK and EU students admitted to study for undergraduate degrees increased by 9%. In 2015 UCAS figures showed that there was another 3% increase in the number of students accepted on their first choice course compared to the previous year, further confirmation that the number of students studying in the UK continued growing.

The UCAS statistics for 2015 also reveal:

  • Rises in student numbers across each of the four UK countries - with the numbers in both England and Scotland up 3%, while in Wales and Northern Ireland they were up 1%.
  • Around 24,090 EU students were accepted, up 11%, while acceptances from other international students were up 6% to 29,170.

In 2016 UCAS figures show that in total the number of students applying to UK universities increased slightly with applications from EU students increasing about 7.5%. Between 2012 and 2016 the total number of applications increased year on year, with a total increase of over 50,000 to nearly 600,000.

International Student Numbers Still On The Rise

The number of international students from overseas, especially from the EU has also been reported to be increasing despite the uncertainty of Brexit. Students coming from overseas make up a large proportion of overall applications and acceptances. The fact that UK Universities Minister, Jo Johnson, confirmed that EU students applying for UK universities will still be eligible for university loans and will not have funding withdrawn has helped keep those numbers steady.

Under the new plans, student funding will continue as before from the 2017-2018 academic year and will be honoured throughout the duration of applicants’ courses, allying the concerns of educational institutions on the subject funding. This announcement has given universities much-needed clarity on the situation and bodes well for the numbers of European students applying for study in the UK post-Brexit.

With funding secured, there seems little reason to expect any significant change in the number of EU students. Indeed, following his appointment as Oxford University's head of Brexit strategy last December, Professor Alastair Buchan claimed that the institution has seen a 10 per cent rise in the number of international applications from the EU.

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What Does This Mean for Investors In Student Housing?

The higher student numbers mean there is more demand for accommodation and this has created a problem as universities have been struggling to provide their students with university-owned campus accommodation.

In 2014 Knight Frank produced a study showing how chronic under-supply in PBSA meant that there was room for massive growth in the sector. Since 2014 the number of UK university applicants has increased by over 13000, so with student numbers are increasing as fast as new developments are built we are still experiencing an under-supply of student housing and this is reflected in the popularity of PBSA with both investors and students themselves.

As well as increasing numbers over the last decade, there has also been a change in the market conditions as modern students are expecting more up-to-date and luxurious accommodation compared to students ten or twenty years ago. This is another reason why purpose-built accommodation is increasing in popularity among students. The higher-spec accommodation means that students are also more likely to be prepared to spend more money on rent for housing that has more facilities and amenities such as laundry rooms, common rooms, gyms, and en suite bathrooms.

This means that there will be greater profits for investors, especially in certain student ‘hot spot’ locations such as Sheffield, Huddersfield and Liverpool.

International Investors Are Contributing To The Growing Sector

International investors have shown a growing appetite for student accommodation investments. According to Savills, global real estate providers, in 2015 American, Russian and middle-eastern investors spent more on PBSA than UK investors for the first time.

In 2017, it is predicted that £5.3bn is to be spent on purpose-built student property for sale compared to £4.5bn last year and a record-breaking £6bn in 2015.

This overall increase in student accommodation investments has primarily been down to international investors who increased their market share to 64% in 2016 from 35% in 2015.

Investors in the Far East are particularly interested in this asset class, which is partly due to the influx of money from Singapore, from where spending amounted to £2.1bn on UK student accommodation investments last year Savills’ research and strategy director, Jacqui Daly stated;

“Their continued investment in 2016 is a massive vote of confidence in this sector.”

UK student accommodation investments are popular in Asia because UK higher education is tangible for them and they can understand the concept of student accommodation easily.

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Student accommodation investments in the UK is predicted to continue to be a growing sector for investors in the UK and overseas. The numbers have shown that the student housing sector still remains vibrant and attractive to investors.

The key for investors, as always, is to do your research and to look at locations that have a growing student population, but not an adequate supply of student accommodations.

Growing areas for student accommodation investments include Exeter, Guildford, Leeds and Huddersfield. Although these areas currently have a low supply of student housing, the universities are seeing success in attracting new students, which in turn is driving up rents, which is great for investors. The average weekly room rent in a student accommodation block is £126 but has risen in areas such as Oxford (£180) and Guildford (£200) even more.

A further indicator of the sector’s strength post-Brexit referendum is the fact that in 2016 there was £1.9bn invested in PBSA before the referendum, compared to £2.1bn in the six months following the vote.

Based on the data available and the numbers provided by UCAS, the student accommodation market isn’t slowing down regardless of Brexit and all the evidence suggests that student accommodation investments will continue to be a growing asset class in the UK for the foreseeable future, with levels increasing by 17% so far this year.

At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment.

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