Can Purpose-Built Student Accommodation Survive after Brexit?

As applications from EU students to UK universities drop for the first time in six years, an excess of rooms in multi-million pound purpose-built student accommodation blocks is becoming apparent.

Over the past decade, expectations from student housing have slowly shifted from the bare minimum to students wanting much more from their accommodation providers. Onsite gyms and cinemas, en-suite bathrooms, and concierge services are often what students want – a long way away rom the basic bedsits students were once accustomed to.

In recent years, investors have spotted the shift in requirements and have increasingly turned their attention to more purpose-built student accommodation, predominantly located in city centres.

According to the latest research, £5.8 billion was pumped into the student property sector last year, while private investment has continued to grow across the UK. Investor demand for student accommodation has continued to increase, even following the Brexit vote; £3.1 billion worth of student halls of residence were sold to property investors – more than double the amount traded in 2013 and 2014.

Can Purpose-Built Student Accommodation Survive after Brexit?

It’s easy to see why investors, particularly from overseas, are ploughing billions of pounds into student accommodation in the UK. With average student rents in London now at £226 per week – up by 2% on last year – and £146.73 across the UK, investors are receiving healthy investment returns, and it seems that rent prices are set to continue rising.

The Managing Director of StudentTenant.com, Danielle Cullen, says: “It’s great to see another year of strong investment into student property in the UK, but how well it will continue to grow post-Brexit is now a bit of a grey area.

“Compared to student houses, purpose-built blocks are a more viable option for densely populated areas where there’s limited space. Perfect for students wanting to live in the centre of town, saving them time and money travelling, subsequently reflected in a higher rental price.”

She continues: “Generally, students want the ease of living in high-quality accommodation which already is inclusive of bills, has plenty of amenities and close to the centre of town. Everything that these student accommodation blocks offer makes a difference to practicality, something that was very new and desirable when they were first introduced.”

Investment into purpose-built student accommodation was considered low risk prior to the Brexit vote, as investors were safe in the knowledge that student blocks had guaranteed incomes and higher education applications were set to grow over the coming years.

However, following the Brexit vote last year, applications to UK universities have fallen for the first time since 2012, when tuition fees were increased. As of June, EU applications fell by 5%, from 51,850 to 49,250, which could have a big impact on student accommodation blocks, as property managers are struggling to fill them to capacity.

Cullen explains: “In our experience, we’ve found that overseas students generally opt more for purpose-built student accommodation over private properties. They’re travelling hundreds of miles to study away from home, often to a country they have never been to. They like to have the extra support on offer through these types of residences, which usually have 24-hour security and full-time receptions. The fall in international university applications could dent the pockets of both the investors and the operators, as they could potentially struggle to fill the rooms.

“Falls in student numbers inevitably means an excess supply of housing, and it looks set to continue for quite a number of years. The drop in demand is good for competition, and could drive down the price of accommodation in the short term, but the long-term effects on the UK student housing sector could be damaging. We could see a fall in investment in the future, as investors opt to capitalise on growing markets elsewhere. This could also potentially mean less concentration on the continued development of already built blocks, as concentration turns more to maintaining cash flow rather than improving services.”

While Brexit is not the sole contributor to the decline in EU student applications, the uncertainty of how the UK will deal with overseas students post-Brexit is putting off some young people.

So far, little has been mentioned on how companies in the student sector will deal with overseas students post-Brexit. The Students Loan Company has made no announcements on whether EU students will be eligible to receive grants, and have so far only made reference to students entering the 2017/18 academic year.

However, Jo Johnson, the Minister of State for Universities and Science, has announced a hopeful agreement with the EU: “There are obviously big discussions to be had with our European partners, and I look forward to working with the sector to ensure its voice is fully represented and that it continues to go from strength to strength.”

No word has been heard from the Government on how UK higher education will work with the EU following Brexit.

Cullen concludes: “How well will student accommodation survive a post-Brexit UK? That all rests on whether the Government can make the right deals with the EU before the deadline.

“We’re all still waiting in the dark, which is increasingly worrying for the future of our higher educational system. The UK needs to remain an attractive choice for not just EU students, but international students, so we’re attracting the brightest and best minds.

“It’s good to see that there are murmurs that there will be a partnership in place, but we need to start pushing for agreements. We need more than just assurances, we need signed agreements and guarantees.”