The cost-of-living crisis is driving demand for Britain’s student halls, as undergraduates hunt for tenancy agreements that lock in the price of their bills.
(Bloomberg) — The cost-of-living crisis is driving demand for Britain’s student halls, as undergraduates hunt for tenancy agreements that lock in the price of their bills.
Some £6.9 billion ($8.5 billion) was invested in purpose-built student accommodation — known as PBSA — in 2022, a 62% year-on-year rise, according to broker Knight Frank. What’s more, £3.8 billion was spent in the final quarter, boosted by the £3.3 billion sale of one of the UK’s largest student accommodation firms.
“An unanticipated positive stemming from the cost-of-living crisis has been a change in student sentiment toward PBSA versus that of the private rented sector,” said Katie O’Neill, head of student property research at Knight Frank. “More students are opting for the fixed cost model of professionally managed PBSA as they seek to maximize value for money.”
Historically, there has been a perception that PBSA is more expensive than the wider private rental market, meaning the general trend was for university students to move into apartments or houses in their second and third years. But with inflation still in double digits, more students are choosing to remain in PBSA to avoid hikes to broadband and utility bills throughout the academic year, according to the report.
That’s because the private rental market typically requires tenants to pay their own non-rental costs directly to service providers, making them vulnerable to hikes in utility bills and taxes, which are usually included in a single bundled price for those living in purpose-built accommodation.
“We are seeing students increasingly choosing to take the risk-reduced PBSA option,” said Duncan Garrood, chief executive officer of developer Empiric Student Property Plc. “The current academic year has seen our strongest bookings ever, and at 98% we are effectively full.”
The surge in demand for PBSA means there’s no guarantee students will secure a bed. Knight Frank’s analysis of ONS population projections, along with entry rates from university admissions service UCAS, suggests there will be a 16% increase in full-time undergraduates between now at 2030, representing an extra 263,000 students.
Meanwhile, new supply will lag demand, with only 25,700 beds under construction for the 2023 academic cycle. That’s because red hot inflation has caused building costs to surge, dampening the financial viability of new proposals.
Still, the strong undersupply and demand imbalance, combined with Knight Frank’s prediction of 5% rental growth in 2023, is likely to trigger more investment in the student sector compared with other real-estate asset classes, the report said.
“In recessionary periods, we often see student numbers rise as people look to upskill,” said Merelina Sykes, joint head of student property at Knight Frank. “This, coupled with the shortfall of student property across the UK, bolsters the case for investment and as a result deal volumes should rise.”
(Updates with a link to today’s inflation data in the fourth paragraph and a new quotation in the final paragraph.)
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