Demand for university places has hit a record high, but a slowdown in delivery of new accommodation caused by the pandemic, as well as rising costs and inflation, is hampering construction viability, according to a report from real estate services firm Cushman & Wakefield.
Issues of affordability for students also means a growing differential between the maintenance loan and the cost of living could impact where young people choose to study.
The report shows there are currently 2,175,835 full-time students studying at UK universities, setting a record for higher education demand. More students are studying away from home than ever before, at 61% of the total population; an increase of 221,990 over the previous five years. 1.63m students now require bed space during their course of study.
Supply is struggling to keep pace with interest. The 2021/22 academic year saw a continuation in the longer-term slowdown of new schemes being brought to the market, with the number of developments (69), less than half the 2017 level. The pandemic paused several planned deliveries, a trend that may continue due to escalating and uncertain build costs, wider inflationary concerns, land availability and planning policy.
Student rates continue to rise according to the Cushman & Wakefield report. The average annual private-sector rent outside London now at £7,055.71 – which is 74% of the maximum Student Maintenance Loan amount. The average university price is £6,482.45 – 68% of the maximum Student Maintenance Loan amount. Rental growth for 2021/22 stood at just 1.07%. However, this is set to bounce back in the next 12 months to 3.1%. This is indicative of increased confidence and the strength of demand in most locations, with most rents being set before the full impacts of inflation are evident.
The next academic year will see several markets delivering upwards of 8% rental growth, with Durham leading at above 10%, followed by Belfast at 9.6%. Glasgow’s West End rents are delivering the strongest rental growth of any area in the UK at 13.1%, due to strong levels of demand and a shortage of overall housing.
The segmentation of rents across markets continues, and clear differentials can be seen between average costs for the same quality product in low, medium and high rent markets. Average rent for a good quality scheme in Cardiff, Liverpool, Newcastle and Sheffield is priced at £143.71 per week – 16% lower than the £166.13 seen in Birmingham, Nottingham, Leeds and Southampton.
In turn, this rent is 18.5% lower than seen in expensive markets such as Bristol, Bath and Manchester – at £203.72. Considering a typical 44-week length, a student in a high-priced market could be paying £2,641 more per year for the same quality room than a student in a low-priced location – 95% or 67% of the maximum Student Maintenance Loan, respectively.
“Affordability will continue to be a big issue for the sector both for providers and students who are having to account for the impact of the cost-of-living crisis. Rents are rising while maintenance grants have failed to keep pace. Only a limited number of students from the least wealthy households receive the maximum loan amount, meaning that only those with a household income of under £25,000 per annum receive a loan higher than the average private sector ensuite rent.
“Despite this, the number of young people seeking to go to university remains extremely strong and the challenge now for accommodation providers will be to continue to deliver a pipeline of new stock against a backdrop of multiple construction challenges. However, the total of academic facilities opening between 2020 and 2025 will likely be north of £7bn, which is a record for a five-year period.”David Feeney, Partner, Cushman & Wakefield (Student Accommodation Team)
The report also reveals that counter to the long-term undergraduate trend of a ‘flight to quality’, it is universities ranked below 100 in the league tables are growing the fastest, outpacing the top 25. The average league table position of the ten fastest-growing universities (in percentage terms) in 2020/21 was 105. The fastest-growing Russell Group institution was only the 19th fastest-growing university in the UK.
London is both the city that has the greatest need for additional beds and the one that has become most hampered in being able to deliver them. The capital’s student-to-bed ratio stands at 2.56:1, making it one of the least supplied cities in the UK – a level that is only surpassed by markets such as Bristol and Brighton. To achieve a healthier student to bed ratio, London requires 19,000 additional beds.
Students from outside the UK now make up 26% of the full-time population, with Chinese students accounting for one in ten international representatives. The number of sponsored visas issued in 2020 was down 22% on the 2019 figures, and is indicative of the significantly reduced number of international students entering the UK for 2020/21. The key Q3 period was particularly affected, with issuances down 35%.
Since then, numbers have recovered, with visa issuances in 2021 being 81% higher than in 2020. The key Q3 period saw a 104% increase in issuances on 2020, with several providers insisting international students return to campus. 2022 will see further acceleration in international student numbers, with increases in undergraduate acceptances through UCAS at major institutions.
“Another significant challenge facing accommodation providers is that there are still around 175,000 un-refurbished first-generation bed spaces in operation in the UK market for this academic year, which represents around a quarter of the total market. The overwhelming majority of these are university owned. As they reach the end of their operational lives, universities across the UK are wrestling with their options in an era of Net Zero targets. With the embedded carbon associated with new build, there is a balance to achieve between spaces that are more likely to be refurbished rather than demolished.”David Feeney, Partner, Cushman & Wakefield (Student Accommodation Team)