Confidence returns to UK student market
£72 billion UK student market sees development volumes and deal numbers bounce back as students return to campus.
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Over 30,000 purpose-built student bedrooms were completed last year, more than double the 14,000 achieved in 2020 when the pandemic slowed construction. In total, these new additions lift the overall number of purpose-built student bed spaces in the UK to over 700,000.
A further 21,000 beds are estimated to be in the pipeline for delivery in time for the 2022 academic year. Once built, our calculations suggest this will take the total value of the UK student market to £72 billion.
Confidence is returning to the sector following lower than expected occupancy rates and rent collection in 2020-21 as learning shifted online and restrictions on movement hampered students’ ability to travel.
This academic year (2021-22) the sector has surpassed expectations as students return to campus. Average occupancy levels of over 90% have been reported.
Capital flows
Investors spent £2.46 billion in the sector in the second half of 2021, taking total spend for the year to £4.42 billion. Investment for the comparable period of 2020 was £5.9 billion (though £4.7 billion of that was for a single deal, namely Blackstone’s acquisition of the IQ portfolio).
Analysis of transaction volumes points to a more active market. Some 35% more deals were struck in 2021 compared with last year and 6% more than in 2019 (pre-pandemic). Knight Frank has identified at least a further 20 deals which are expected to occur in the first quarter of 2022 providing a strong start to the year.
2021 saw a weight of overseas capital committing to UK student accommodation, with landmark deals including acquisitions by Blackstone, Greystar and Mapletree. In 2021, investment from Asia in UK student property was in excess of £400m.
Outlook
Investors are looking past any short-term issues to a growing potential pool of new students. The latest applications data from UCAS suggests student numbers have recovered to higher than pre-covid levels. Accepted applicants from outside the EU are up 3% year-on-year.
Looking forward, a coming demographic bulge in the UK among university-age students is expected to increase the number of 18-year-olds in the UK by more than 160,000 over the next decade, supporting the longer term outlook for demand.
As well as an undersupply of student accommodation in the UK, ongoing uncertainty and investment risk across global markets is a key driver for continuing investment into student assets. It also reflects a wider pivot, which has taken place over the last 18 months, by institutional investors towards residential assets.
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