Addressing the big issues facing the sector in relation to supply and demand.
In November, David Phillips and Property Week brought together a panel of experts to discuss why student accommodation models need to reflect students’ changing social and financial concerns.
Our roundtable panel met to discuss topics including:
What impact will the Brexit vote have on foreign student numbers?
Is there a market for purpose-built accommodation aimed at older students?
How can providers meet the need for more affordable accommodation?
What duties do providers have in terms of pastoral care?
Our panel of experts
- Philip Abbott, Fieldfisher
- Maabena Adae-Amoakoh, Viridian Housing
- Neil Armstrong, Knight Frank
- Trevor Bonnage, UPP Projects
- Dan Brownsword, David Phillips
- Tim Daplyn, Red Brick
- Cecily Davis, Fieldfisher
- Nicholas Gill, David Phillips
- James Greenaway, BuckleyGrayYeoman
- Paul Hadaway, Empiric
- Philip Hillman, JLL
- Andrew Iles, Willmore Iles
- Simon Jones, Unite Students
- Roger Lown, Bilfinger GVA
- Richard McKenna, Savills
- Clive Panter, Lewis and Hickey
- Alex Pease, Watkin Jones
- Billy Smith, David Phillips
- Matt Tarling, Stride Treglown
- Ian Woosey, Balfour Beatty
It was an interesting day to hold a debate about student accommodation. In the week leading up to the debate, sponsored by furniture provider David Phillips and hosted by law firm Fieldfisher, Morgan Stanley had published a report claiming to show that applications from EU citizens to elite British universities had taken a tumble in the aftermath of the referendum.
More pressingly, on the day of the debate, the High Court had ruled that parliament had to be given a say in the triggering of Article 50, that our new prime minister did not have the authority alone to do so. All of which prompted immediate questions on the impact the Brexit vote would have on demand for student accommodation…
What impact will the EU referendum have on the market?
Philip Hillman (PH): The investors, the developers and the operators are relatively relaxed about the impact of Brexit on our sector. We’ve run a number of sales processes, they’re either complete or ongoing, and we haven’t seen Brexit have any significant impact on those processes. I’ll tell you where we do see an impact - it’s among our university friends, who are still in a state of shock and denial.
They cannot believe that experts have been ignored and that what’s happened has happened. It’s not just about shocked academics. There is a sentiment that has gone out to Europe that isn’t a very good one, suggesting that we’re all National Front and don’t like foreigners. I’m concerned that might disrupt things a little.
Having said that, international student numbers globally are increasing massively, so I think that what it might do is perhaps take a little heat out of the international market, but it will still be better. Having just read Morgan Stanley analysts’ views on what’s going on, I thought they were extremely negative on many aspects of the impact of Brexit on international students. I think they’re just placing too much credence on the fall of early applicants for Oxford and Cambridge.
Cecily Davis (CD): If you don’t attribute the fall in applications to universities that are right at the top of the tree to Brexit, what do you think the cause is?
PH: The sample is too small. It’s very early applicant data.
Simon Jones (SJ): The number of students in the sample size was 58,000, which is tiny against the 770,000 [that apply]. The 2016 entry for EU students went up 8% and we’re now down 9% on this very small sample, so we’re back to 2015 levels. The government only confirmed the funding policy four days before the deadline. So for the mass intake, which is the January deadline, students are clear they will be getting full fees support and the loan system for 2017/18 and for the duration of their course.
Tim Daplyn (TD): I agree with that. The numbers are not hugely significant at this stage; we’re only talking about particular universities and courses and EU internationals. It’s worth remembering that EU internationals only make up 5% of the undergraduate full-time student population. This is where you need to do your homework and know your institutions, because with some it’s as high as 25%.
On the flip side, if you look at the non-EU internationals, I would be pretty bullish about the value-for-money of coming to London from pretty much anywhere else in the world at the moment. Of course, there are concerns about how stable that value-for-money is in the longer term. That said, I expect there will be a slight reduction because of the sentiment - it was terrible PR. But I wouldn’t overplay how concerning it is to students outside the EU and would still expect those numbers to grow.
Philip Abbott (PA): I think the events of today, it’s probably a victory for lawyers, but it won’t necessarily change anything. It will probably delay or create more uncertainty, but I don’t think it will change the impact.
Richard McKenna (RM): One of the interesting things about Brexit is that nobody really knows what it means. What does it actually mean? We just don’t know. But as Philip said, the rhetoric is important.
Taking into account the Brexit scenario, but more broadly, how much more can the student accommodation market grow? I’m hearing stories of buildings in places as diverse as Cardiff, Newcastle and London with serious void rates. Have we built too much? Where do the opportunities remain?
Neil Armstrong (NA): A great example of that is Liverpool. Liverpool is a market that everyone talks about being massively oversupplied. There’s this phenomenal pipeline coming through. My prediction is that those schemes will come out of the ground and will cannibalise the older, inferior stock in inferior locations. It’s those secondary assets that will suffer. The high-quality, well-located schemes will continue to do well. It will be interesting to see how it plays out.
Alex Pease (AP): I think what we need to remember is that it’s a cyclical sector. Liverpool was a first generation city with great universities. A huge amount of stock came in and people said they wouldn’t build there again. What happened? Student numbers carried on growing and the first generation stock wasn’t fit for purpose or in the right locations any more. Buildings started dropping out of the supply and went for alternative uses.
Suddenly, Liverpool is viable again. I think you see that across a number of different cities. When cities reach a tipping point, you need to be very careful and find the best locations. The sector’s maturing and the analysis is getting a lot better. There are still very few cities that we would consider to be completely unviable at this stage. It’s about finding the best opportunities.
PH: Fairly recently, we were talking about the ‘squeezed middle’ in universities - not the Russell Group or the ex-polytechnics, but the fair old chunk in the middle that were having a tough time. The vice chancellor of Exeter was quoted recently as saying it’s not the squeezed middle any more, it’s the bulging middle. That’s because a lot of them have been managing to do pretty well on the removal of the cap scenario.
If I was investing my money into a particular city at the moment, it wouldn’t be on the historical reputation of that city, it would be about what that university is doing. With so many universities relying on international students, how well will they do in five years’ time? Not because of Brexit, but just because we’ve been saying for years pre-Brexit that there will only be a certain number of destination universities in the UK. So which are the universities that are going to continue to do that well, and which are going to be the local universities that frankly don’t need much accommodation?
AP: I think the other angle is that if you look at how much market share the purpose-built market has, it’s still relatively small. It’s 25% of the market and 19% of that is university-owned stock, of which 80% was built pre-1999. There is a lot of ageing stock. If people aren’t staying in purpose-built, they’re likely to be in HMOs [houses in multiple occupation] or staying at home. In the HMO market, you’ve got increasing SDLT [Stamp Duty Land Tax] and that’s having a big impact on stock coming onto the market as HMOs. Then there is the quality factor. Students are paying for their education now and they’re more demanding. We’re seeing far more demand for study areas. They want 100MB broadband. We’re stealing a march on the HMO sector.
My impression is that we’re building a lot of stock at the top end of the market, but perhaps less so with more affordable price points. Is that correct?
Matt Tarling (MT): We’ve seen work in both private sector and university side and get to see both sides of the picture. Taking a city like Bath, for example, we’re working both on and off campus. We spend a lot of time with the director of accommodation, designing the on-campus accommodation. What they’re screaming out for are the cluster flats - the more affordable accommodation. What’s happening in the city is that the developers are pushing for studio accommodation. We’re in a position where we know that what the universities and the students want are the clusters, but obviously we’re not in control of that direction. We feed that back, but ultimately it comes down to the appraisals and developers wanting to make the best returns on individual sites.
PH: It’s not just developer greed, though. The residential and commercial markets in Bath are crazy. The capital has to have a return. This is where you have your dilemma with anti-capitalists leading student campaigns. They will not listen to any discussion about where that capital might go instead. I don’t think it’s the developer’s fault, although I don’t want to be the defender of the evil capitalist developers!
Maabena Adae-Amoakoh (MA): Viridian Housing is a social housing trust and our business is the provision of affordable accommodation. Our experience is that there is a real pressure for more affordable housing in the student market. What we see is that a lot of people are struggling and put off and are looking for bursaries and other forms of support to help them pay for accommodation. We’ve also found that it is restricting people’s choices in terms of where they study. So whereas 30 years ago people going to university would go wherever they wanted, now you find a lot of people have to stay at home for their university course. Perhaps in the first year they can go into university accommodation, but after that they have to go home. There is a real space in the market for more affordable accommodation.
PH: I can see there is space for it, but I don’t see how it’s going to happen.
MA: It’s a challenge for the institutions if they wish to attract local students, because you can’t just rely on international students. You do need to have that core of local students. A lot of institutions don’t have in their home areas enough students to support them, so you have to have people travelling in. They will need somewhere affordable to stay.
Trevor Bonnage (TB): We’re generally not in the business of building swanky studios. We are also experiencing demands from universities to start providing more affordable accommodation. That may mean moving from 6-8 bed to 8-10 bed clusters, and moving from en-suite to non en-suite. Town houses work - they’re very popular. We’re recognising more and more that student experience is very important. It’s a hackneyed phrase now, but we do need to add something into the mix other than the size of a bedroom. You need to improve the quality of students’ experience.
James Greenaway (JG): I think what is interesting for us, as architects, is the competitiveness of the market now. When we first started looking at it 10 years ago, we very much had this studio model in terms of what we were providing for private developers. But actually, in a competitive market, the private developers we’re working with now are looking at what they have to provide to be able to compete with each other in terms of design quality, but also that communal experience. It’s part of the experience of being at university. I think the affordable element is quite interesting. I was talking to a planning consultant today and the issue is becoming about whether the authorities will try to legislate for something as they do with affordable housing. I know from speaking to planning consultants that they really struggle to understand how an authority can do that, but it is something authorities are looking at.
Clive Panter (CP): We’re doing a lot of work on how we might be able to realise a budget offer for developers and institutions. There are two sides to it. At the end of the day, you’ve got to have walls, roofs and a floor, and the cost between having an en-suite bathroom or not becomes minimal. The construction-cost benefit you get from sharing those facilities is actually quite minimal.
Andrew Iles (AI): Another aspect is that providers on campus and institutions can’t cut back their service. You can’t have a reduced security provision, for example, from one side of a campus to another. They’re facing other challenges beyond construction and that has an impact on price.
RM: We’re all looking at ways to make accommodation more affordable and still stack up from a development point of view, but there is 75% of the market that is taken up by HMOs and people living at home. That is affordable and is £100/week in most cities. I don’t believe it’s the case that the students don’t have a choice; there is a huge range of price points in the vast majority of places. London is an exception, because renting in the private sector is as expensive as student accommodation, but there is a range of price points.
Nicholas Gill (NG): This year, we have been very busy at the more premium end of the market. Having said that, as we’re talking to clients for projects in 2017 and 2018, there is certainly a demand for more affordable products. We’re also seeing a greater emphasis being placed on communal space. It’s moving away from primary accommodation, bedrooms and clusters, and is much more about community space.
TB: Yes, there is a choice. You can pay £75/week if you really wish, but people don’t necessarily choose that. With the introduction of fees, did we see a reduction in demand for £140/week? No. People decided they wanted better value; they wanted more out of their course and therefore somewhere they could study. People want to do this properly now.
TD: I don’t think it’s as simple as saying to prospective students that you can have the same experience in an HMO with a bunch of people you don’t know… I think there is a danger that you dilute the attractiveness of the student experience and the institutions have strategic pressures on them. If there isn’t enough accommodation of the type students now expect, and which can provide the experience, this is going to impact on student choices on whether they go to university.
CD: I largely agree, but I look at the difference in the way in which students approach their time at university now. Certainly when I was at university, most people didn’t have jobs when they were there. It seems to me, anecdotally, that there is a greater number of students who are now earning; they take the decision to go to university much more seriously. It’s quite different to when we were at university.
Ian Woosey (IW): The amount of purpose-built student accommodation the private sector has provided over the last five or six years is probably about five times what the universities have done. I think the universities have woken up to the fact that they are in competition with each other and need to attract students. They see themselves as the guardians of the student experience and they need to up their game. I can see a lot more university-promoted schemes on campus coming through to try to redress the imbalance with the private sector
PH: I think the private sector and the universities are trying to offer a range of price points. It’s not easy, but they are trying. Investors are particularly attracted at the moment to an affordable price point, selling slightly older stock. People have been very attracted by that.
AI: On affordability and widening participation… it’s a real challenge to achieve. So should we be looking at bursaries and other types of financial support, rather than trying to re-engineer the model?
NG: We are certainly thinking about it quite hard. We are obviously a provider to the student sector and work with both purpose-built and the universities themselves, and I think we have been somewhat struck by the stridency of the demand for affordable housing. We’re certainly thinking about putting some sort of bursary in place.
MA: We do see it as useful for our residents. Students from social housing don’t tend to have much money. As a social housing provider, we therefore provide access to bursaries within our student accommodation stock.
MT: One of the things I think is a real challenge is that universities in the past were great levellers in terms of equality. By having those different price points, especially when you start getting into the £200/week accommodation, what you’re getting is a hierarchy.
PH: Land price is so much the start of all these inequalities. We’ve seen developers increasingly look for sites in Wembley and Stratford in response to the price of land in central London. That’s one way of being able to provide a more affordable offering. Traditionally, most student-housing operators were buying in slightly edgy areas. Maybe we’ve been trying to build it in expensive areas too much recently. There is a role there for intelligent land buying in places that are more affordable and are decent, safe places to live. That was the model, and I think we sort of got sucked into the central London thing and studios because it was the only thing that could compete against high-end resi.
SJ: We have 49,000 beds across the UK, which I sell every year. I think it’s interesting that with the drive for affordability, when you present something that’s affordable, it’s not necessarily being taken up. We have buildings in Stratford, Wembley and Tottenham Hale. Tottenham rents are around £165/week, in zone three. It was the last building to go, and yet it’s much cheaper than centrally located cluster accommodation.
RM: Is that since the new fees came in?
SJ: Yes; it’s about if they’re taking on the debt, then they’ll take on another £10,000. In for a penny, in for a pound. There is an element of that for sure.
We have been talking mostly about first-year undergraduates. Is there a market for older students?
MT: There is a market for PhD and postgraduate students. There is also a market for accommodation for couples. You’re then starting to cover bases that are traditionally done by the HMO and private rented market, but with benefits like security and concierge. There is absolutely demand there, but the numbers are obviously smaller than they are with first-year students, so it’s more of a niche market.
IW: We have a scheme in Edinburgh with 1,100 beds purely for overseas postgraduates. We find that demand is there all the time because they want to be with their peer group - people in the same position. They don’t want to be with freshers.
And does the design of that differ?
TB: The clearer distinction is between first-years and the rest. There is much less of a distinction between second- and third-year undergraduates and postgraduates than there used to be. When we look at them behaviourally, returning undergraduates are much more like what postgraduates used to be like. There is a need to understand the different types of student and the different types of lifestyle they have. I’m very sceptical that there is a future in isolating postgraduates from third-years.
JG: One of the things we’ve seen is that maybe five years ago, there was a lot about the play aspect - the game room, gym, cinema. Now, we’re finding that there is more of a focus on study and social-learning space. It’s about adapting to new models of study.
Billy Smith (BS): In my engagement with universities, there is certainly more emphasis on study space and community space.
What do we think is driving that?
CP: I think students now are much more grown up. We’re not treating them like children any more. These are people who are now thinking about their investment in their education and what they’re going to be doing beyond that. The whole blurring of work, study and leisure that we all have in our lives is how these people as tech natives have been brought up and are approaching the world. We need to understand how they operate.
AP: It mirrors what we’re doing in PRS - that blurring of the lines between working, living and communal activities. The boundaries are getting quite close.
TD: It underlines that today’s students are more mature - and I mean depressingly. They drink less, there’s less sex, fewer drugs..
TD: But in terms of the study, we do a lot of work with the universities and one of the things that keeps coming up is that students don’t want to be siloed in terms of subjects, careers advice and so on. They want to connect with each other.
TB: I absolutely echo that, but this is not a surprise. Other areas of our industry understand that with hot-desking and such; we just need to apply the same evolution we’ve seen elsewhere. It’s happening everywhere and it needs to be transferred. We don’t necessarily call them customers, but we do pride ourselves on the pastoral aspects, and I am always struck by the care with which our on-site staff form relationships with students. It’s part of the business and part of their lives.
Has the level of pastoral care that is expected changed?
TB: It’s hard to say whether it’s changed, but I’m definitely struck by the level of pastoral care that we provide. As universities have stopped providing accommodation, it’s something we’re doing more of. It’s not something that we major on, but it is very important to us.
SJ: I think the maturity of students… they are mature as consumers, but they are becoming less and less mature in other ways, such as in terms of welfare and support needs. We’ve seen self-diagnosed mental health issues on the increase. So there is a need for support and we are working closely with universities, and they are putting more and more into their counselling services having watered them down previously.
MA: Yes, the students coming in need treatment as customers and they are sophisticated as customers. But in terms of pastoral care, we have always done our best. There are people with mental health issues; we find that is happening more often and, as an accommodation provider, you have to be there to offer support before other agencies step in.
Surely the first responsibility lies with the university, not the housing provider?
MA: The university isn’t immediately there on site. Of course, they are a partner, but they don’t have operational staff to manage the initial situation.
TB: Are universities happy for you to be providing pastoral care?
SJ: I think some of the universities have very sophisticated pastoral care models and don’t want the providers involved, but they’re pretty few and far between. There aren’t many that operate at that level. Some are looking to private providers to offer some of that support. And then there are those in between.
Does that inform how buildings are being marketed?
TB: We’re certainly looking to major on facilities other than leisure aspects. We’re looking at health and well-being issues - buildings that perform better in that respect.
It’s about the way it makes you feel to work in that space.
NA: We’ve done a lot of work with Goldman Sachs and they had schemes with fantastic gyms; as a young person, you go around and think they look amazing, but the reality is they don’t get used. So what they’ve done is stripped out that stuff and created mini-amphitheatres where students can hang out. It’s all much more useful.
SJ: It’s all very experiential now. The big players all now lead on community and welfare. The product itself is secondary. It’s all about experience: living and studying.
This event was chaired by Property Week’s Adam Branson and took place on 3 November 2016 at Fieldfisher, Riverbank House, 2 Swan Lane, London EC4.
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