London, Manchester, Birmingham, Exeter, Bristol, Edinburgh and Leeds are all cities that feature heavily on investor wish lists. The clamour for big, popular, well-established university cities is completely justified.
By Anthony Hart, Partner at Allsop
However, by using data sourced from the UK’s leading student accommodation search, property management and data platform, StuRents, we can make a case for some of the less obvious purpose-built student accommodation (PBSA) investment locations.
Across all locations, the depth and quality of the data now available can provide insights and an ability to qualify and operationalise decision making in markets where the high-level student to bed ratios no longer give the full picture or provide certainty.
Here are some examples of different insights applied to markets with varying degrees of investor sentiment.
Glasgow’s international popularity
Edinburgh tends to steal the Scottish limelight, but Glasgow is a Russell Group city, and with the University of Strathclyde, Glasgow has one of the largest student populations of any regional centre. The fundamentals are solid but the city’s popularity with students studying from China is of particular interest for PBSA investment.
A city’s popularity with international students is a key consideration supporting PBSA investment. Whilst domestic students do take occupancy in PBSA buildings, international students tend to stick to PBSA throughout their whole university life cycle; through the second, third and often postgraduate years.
The growth in Chinese student numbers at Glasgow University shown in Figure 1 above is bettered only by the University of Leeds (240%) over the period 2014-2020. As a standalone statistic, this should provide significant comfort for PBSA development in the city.
Student numbers in Preston
It’s always interesting to look at the student growth rate from a point in time compared with the rate of PBSA growth over the same time period. In doing so, we often see that some UK cities have seen student growth outpaced by PBSA growth. This is not the case at the University of Central Lancashire (UCLAN) in Preston, which is growing apace and has seen student numbers completely outstrip the supply of PBSA.
From 2017 to 2020, UCLAN full-time student numbers increased by 3,179. Not all of these additional students will require student accommodation, but in the same timeframe, only 507 PBSA beds were delivered in the city. If the rate of growth continues through to 2025, it is possible the city will see an additional 11,000 students with only 860 PBSA beds in the planning pipeline.
There are challenges in developing new PBSA in cities like Preston, but the data suggests it could make a compelling case for future investment. It is certainly a city to keep an eye on.
Sentiment takes a hold of Newcastle
The use of the term ‘oversupply’ by the market in reference to a university destination can have far-reaching consequences: rather than slowing the market down, it can often put a complete halt to the delivery of new PBSA beds, which feels like an overcorrection.
Newcastle has everything you want in a student market. A lively city with famous student areas (Jesmond), a Russell Group university and a polytechnic in Northumbria. It is a city that will always attract high volumes of new students. Yet, despite the fundamentals, new investment for PBSA has been – much like its football team – beleaguered of late.
Figure 3 shows that, after significant investment in 2016, 2017 and 2018, the delivery of new PBSA dropped off a cliff in 2019. So much so that in 2020, 2021 and 2022 no new beds were added in the city and the delivery of 1,044 beds between 2023 and 2024 has been called into question.
Poor investor sentiment should bring caution with the data, not a complete withdrawal. At some point, probably very soon, Newcastle will need to address the current state of student accommodation, particularly as the universities are about to remove and demolish circa 1,300 existing beds. Opportunities will, once again, beckon for investors.
Portsmouth’s HMO demand feeds PBSA
When we talk about HMOs in conjunction with PBSA, we’re often trying to understand how the co-existence of both types of student accommodation impacts actual demand. Looking at Portsmouth, we can take a step further and look at how the demand for HMOs could favour PBSA.
Figure 4 shows that students in Portsmouth are enquiring for better quality HMOs that doesn’t seem to exist in quantities that satisfy demand. This suggests that PBSA owners/developers should be targeting typical HMO tenants, providing them with better quality options.
There are other markets where the data appears in the same way, so whilst it is easy to say HMOs detract from PBSA demand, a closer look at the data points suggests that, in some markets, the lack of good-quality HMO provides opportunities for PBSA owners – and Portsmouth looks like one such example.
Nottingham students push rents
There’s a lot of talk about the affordability of student accommodation; what is fair to students and how can affordability be implemented throughout the sector?
Without undermining the importance of affordability, searches via online letting platforms show evidence of students’ budgets increasing in some UK markets, such as the city of Nottingham, as Figure 5 shows.
Critically, this data doesn’t show what students are paying; it indicates what they would be willing to pay.
Whilst there are some monthly deviations, the trend in Nottingham since 2018 has seen students willing to pay more for their accommodation. The driver for this is uncertain, but from an investor/developer perspective, the rental trajectory of a given market is a key justification for the modelling of future rental growth. It would seem difficult to underwrite rental growth when in fact student budgets are getting smaller.
The UK student investment market has matured to the point where data is becoming more important than ever – it is also more accurate and insightful than ever. As many investors want to invest in the same locations makes sense: the fundamentals are indeed compelling. But the availability of data, like the data provided by StuRents for this article, should open up new and revised ways of analysing a market, providing further confidence and allowing investors to think outside the box, unlocking investments in locations that aren’t normally on the radar.