student accommodation

What will happen to student housing in the future?

The student accommodation sector has proved to be an attractive market for both development finance lenders and property developers in recent years.

According to the latest Cushman & Wakefield student accommodation report, there are now 602,000 purpose-built bed spaces available to students for the current academic year.

The research also revealed that 97% of all studio beds were delivered by the private sector in 2017/18, with this room type up 106% since 2014.

The latest UK student housing update from Knight Frank has estimated that 23,000 purpose-built student bedrooms are due to be completed across the country by the beginning of the 2018/19 academic year.

These figures were compiled following analysis of pipeline development data from across more than 60 university towns and cities in the UK.

Could we see lenders launch specialist student accommodation products?

Chris Oatway, owner and director at LDNfinance, believed that specialist student accommodation products from lenders could greatly benefit commercial investors.

“…It would indicate the lender is specifically seeking the type of investment they are purchasing.

“This indicates [that] the lenders have a better understanding of the type of opportunities that will be presented, enabling the appropriate leverage, rates and fees [to] be applied for each deal.”

Damien Druce, director and head of intermediary sales at Assetz Capital, added: “It doesn’t necessarily require a specialist product, what it does require is knowledge and experience of student schemes and their specific sector risks.

“At Assetz, we have funded in excess of 20 student accommodation schemes across the UK, including the £14m development of Archer House to transform it into a 177-bed student accommodation block and the 46-bed Six Degrees Scheme, both based in Nottingham.

“The timing of bringing a student scheme to market is critical as is location and level of competition in the particular town or city.

“If you get the completion date wrong for a student scheme, not in sync with the student year, then you run the risk of serious rental voids for that academic year, hotel costs if you are late delivering and poor occupancy if you get the location wrong or there is oversupply.

“Clearly, not all the same risks apply to residential in whatever form, as it is simply disposed of on the open market.”

Scott Marshall, managing director at Roma Finance, wasn’t convinced a student accommodation scheme required a specialist development product from a lender.

“…But the way the investment is underwritten could be different, in that the business plan will show potential income from regular student tenants, with some booking the accommodation before the project is finished and paying a deposit,” he added.

“So the way the transaction is structured can be a little different and could be favourable for the developer and the lender.”

Chris Whitney, senior broker at Enness Commercial, added: “While there may not be specific products for student accommodation development finance, there are many lenders who have a very good understanding of such schemes and very able to structure suitable finance packages for developers.

“Whether there is a need for the work that they already do to be packaged into a specific product I am doubtful.

“I think it actually might lead to less flexibility for the borrower.”

What is the future of student accommodation blocks?

Scott said: “As long as the university and its courses are popular, the student block should be a viable investment for many years, but a close eye needs to be kept on occupancy and rent levels.

“There may also be a Brexit effect with overseas students.”

Whitney added: “The recent surge in student accommodation development has been driven in the main by colleges and universities desire to see their students housed in modern, purpose-built accommodation fit for purpose and in close proximity to the campus rather than the old-style HMO terraced houses [with] students spread across a whole town or city.”

“Any property that is deemed to be unsuitable may still have good alternative use value, such as for affordable housing, budget hotels or social housing.”

Damien said: “There is no indication at this moment that student accommodation will be available for the public for HMO use, unless student demand falls away at some point in a given city, that’s not to say it cannot happen, though.

“It may require planning permission for change of use, but many schemes do not have restrictive covenants or restrictive planning permissions and would already permit wider use should it be required.

“Potential alternative uses of a student schemes [are] certainly a key risk consideration.”

Trevor Bargh, CEO at student accommodation developer CityBlock, said: “…It’s crucial that accommodation is developed to reflect the needs of students – developers can no longer simply build a property and hope for the best; it needs to be approached in a much more sustainable way.

“It’s not enough to offer students plush facilities like hot tubs and on-site chefs at unsustainable prices – welfare is becoming more and more important.”

Could student housing be opened up to the public and turned into HMOs?

“While this has happened a couple of times in recent months, this is unlikely for many developments as planning permission for them is often student specific,” added Trevor.

“If providers have to do this, then it’s likely they’ve got [it] wrong [in] terms of how they’ve developed, managed and operated the property.”

Sky Mapson, part of the deal origination team at Maslow Capital, believed that they could be turned into HMOs.

“That is certainly an option,” he said.

“There is also the potential for redevelopment to bring the product in line with the latest standards in PBSA.

“We see a number of developers buying PBSA blocks that are roughly 10 years old and refurbishing the existing space to make sure it appeals to today’s market.”

Robert Simpson, associate director at Naismiths, explained that it was unlikely that student numbers would fall sufficiently in the long term to necessitate the large-scale conversion of these accommodation blocks into HMOs.

“It is also unproven that the private market will tolerate the rents currently being achieved for the higher-end units.

“That said, with many of the buildings occupying prime city centre locations, it won’t take many years of partial occupation for their owners to rethink.

“The sector is undoubtedly facing new challenges in the wake of wider political disruption.

“Universities need to step up, refining their offer as generational expectations evolve and developers will play a key part in meeting market demand and facilitating future market growth.”

Leave a comment