What lies ahead for the student accommodation sector in the coming months?

Covid-19 had a major impact on much of the property market, but nowhere has this impact been felt more acutely than in the student accommodation sector. Last Thursday, SEC Newgate UK was delighted to be joined by Watkin Jones Group, the UK’s leading developer and manager of purpose built managed student accommodation property consultancy Allsop, and student property search provider and tenancy management platform  StuRents to offer their perspective on the challenges and opportunities ahead of the sector. The discussion was led and chaired by Bloomberg’s Olivia Konotey-Ahulu.

Below is a snapshot of the key points discussed during the session.

Occupancy

While occupancy levels are improving, things haven’t yet returned to pre-covid levels, Alex Pease from Watkin Jones acknowledged.. Richard Ward from StuRents highlighted  the number of Student Visas issued to foreign students, as an effective metric to predict occupancy. The latest figures showed a very strong recovery from the dip experienced during 2020/21, with occupancy levels for 2021/22 becoming clearer by the day.

As well as occupancy levels, a key issue for investors is fire safety mitigation. As in the wider property sector, fire safety mitigation measures and responsibilities are not yet clear, creating potential liabilities and uncertainties for potential new owners.

Investment

When the effects of Covid began to bite in Spring 2020, Anthony Hart from Allsop saw deals almost come to a halt. 18 months later, there is now a ‘wall of money’ ready to be deployed, suggesting investors know the fundamental demographics are pointing in the right direction. However, currently uncertainty about occupancy is making it difficult to confidently predict revenues, and this is lowering the pricing of deals, while meaning that yields are remaining strong.

Development and planning

Supply and demand are common measures used to assess development potential in any given city. StuRents explained that whilst Sheffield has added 10,000 beds since 2017, student numbers have increased by only 4,000. Developers in such markets must fight to attract students from other existing operators or those currently living in HMOs.

According to Alex Pease, Watkin Jones, assessments of existing bed numbers should consider that buildings built in the 1980s or 1990s are now quickly becoming obsolete, and are not always tailored to the requirements of modern-day students

But gaining planning permission remains challenging for PBSA developers. Aside from the usual challenges facing all residential development, PBSA will not provide affordable housing accessible to the general public. However, for Alex Pease, the biggest concern for local communities is the belief that students are poor neighbours to existing residents. To mitigate this, developers should undertake good community engagement, and sharing details of the management strategy can be useful to address this specific concern.

Another suggestion was to consider whether any of the facilities being provided can be utilised by the local community. For planning committees, StuRents recommend that developers come armed with data as specific as possible on the need for PBSA in the particular location, not just on a city-wide basis. Supply and demand figures based around large cities were useful, but more granular data would be more helpful.

HMOs are not dead

Both Watkin Jones and Allsop recognised that HMOs and PBSA will continue to successfully co-exist in the future, given their complementary nature and ability to offer different experiences at different price points.

StuRents suggested that PBSA operators should consider enticing students currently living in HMOs, particularly those living in groups who may consider PBSA if operators are able to pass savings generated through cluster bookings on to the end users.

The focus on ESG

The panellists provided a great summary of the current challenges and opportunities within PBSA, including the increased focus on ESG. Alex Pease highlighted how ESG is becoming increasingly important to Watkin Jones during the development and planning phase, while the new generation of occupants and investors are also very focussed on it.

With the demand for student accommodation on the increase and travel restrictions being progressively lifted, the future of the sector is looking bright. However, even after once the challenges of Covid have passed, there will remain numerous medium-term challenges to be addressed.