UK Student Housing

UK Student Housing
 
Values begin to converge

10 May 2017, by Lawrence Bowles

Can student operators deliver and operate Build to Rent?

 

While some markets look less attractive for the delivery and development of new student housing, our analysis of values across a number of alternative sectors shows that values have converged in many markets.

For example, while the student pipeline looks full in Plymouth, there has been little if any development of new Build to Rent (BTR) stock. The value differential between BTR and student in Plymouth is negligible and running a cash flow shows that the IRR derived from BTR is highly competitive with student, especially in markets that are looking less favourable to absorb new student supply.

It’s a similar story in Liverpool but there is more evidence for demand for BTR. Liverpool has seen the delivery of a number of BTR schemes, and take up rates are high. We believe the market is well placed to absorb new BTR while student looks less attractive.

FIGURE 11

Relative capital values of PBSA and BTR, £psf

 
Figure 11

Source: Savills Research

Can student operators stretch to BTR?

We have being saying on record for some time that student operators are well placed to deliver and operate BTR. They have vast amounts of experience of developing purpose built stock, establishing brands that attract students and operating a business that meets investors’ return requirements.

So what’s holding back the Student Players?

Fresh Student Living has around 16,700 student beds under management and they have recently set up Five Nine Living to deliver management solutions on PRS / BTR schemes.

The only real difference between operating student and BTR is the profile of let up and stabilisation. Instead of one letting cycle per year, there is constant letting and churn in a BTR scheme. Evidence shows that the typical tenancy length of an occupier in a purpose built professionally managed unit is three years.

So while the let up profile might be different, the longer occupancy length means that cash flows should be roughly equivalent over the long term.

What is clear from other markets like the US is that there is a key demographic group that want purpose built accommodation. These occupiers are willing to pay for the services and amenities that go with this type of stock and they typically start their journey in PBSA. What’s more, student demand has shaped demand for multifamily in America. It can do the same for BTR here in the UK.


Alternative Property Ladder

Purpose built rental products span the whole range of age groups from students through graduates and professionals to family housing.

For operators working in both the student housing and BTR markets, this presents an opportunity to build cohorts of lifetime customers. By providing a fantastic experience for students at university and earning their customer’s loyalty, they can continue to house those people through their time as young professionals and when they move to start a family.

Higher expectations

Student housing used to be seen as a rite of passage. Young people would spend three or four years in grotty, overcrowded flats while barely scraping enough money together to afford instant noodles and a night out.

Those days are long gone. Now, student accommodation is some of the highest quality housing in the country. New, purpose-built blocks have facilities and amenities designed to accommodate every need. This raises the question: why would graduates want to leave?

Of course, nobody is suggesting graduates should stay living in student housing forever. But they can experience the same quality and level of service elsewhere, namely in co-living or Build to Rent homes.

Different product, same experience

For those still happy living the communal student lifestyle, co-living spaces such as the Collective at Old Oak Common offers a similar experience to student housing. The private living space is similar to PBSA, but residents can also access all sorts of shared space such as kitchens, gardens, a games room and even a spa.

Following on from this, those graduates can move on to a more private space in a Build to Rent scheme with more traditionally sized apartments such as those at Vantage Point or East Village, both in London. Another option further up the ladder is BTR housing designed with families in mind – such as offered by Sigma.

Beyond that, we have started to see companies such as Hanover and Girlings investing in rental accommodation for senior or retirement living. This accommodation provides the space and amenities valued by older people while providing additional support with daily tasks and medical care as people age and their needs evolve.

FIGURE 12

The Build to Rent Life Cycle

 
Figure 12
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