Unite’s chief on staying the course

Chartered accountant-turned-chief executive of a listed student giant, Joe Lister has been with Unite Group for more than two decades. During that time he has seen the business change “massively” – and that pace of growth is one of the reasons he has stayed for so long. Today, FTSE 100 constituent Unite has 68,000 beds across 152 properties in 23 leading university towns and cities, amounting to £10bn in total value. With the current economic conditions comprising high inflation, soaring land prices and rising construction costs, the focus for Lister and colleagues is cementing its joint ventures with universities, alongside refurbishment and redevelopment plays. Earlier this year, the student developer entered a joint venture framework agreement with Newcastle University for the development of 2,000 student beds. The pair will develop the accommodation at the university’s Castle Leazes site for delivery in 2027 and 2028, knocking down a 1,250-bed development built in 1969. “University partnerships is a big growth opportunity for us,” Lister told Estates Gazette. “It’s one of the by-products of the funding challenges that universities are facing at the moment. Universities have had to cope with their tuition fees remaining frozen for seven years, and that has put some pressure on their overall funding models. They are looking more creatively at how they can provide modern, purpose-built, sustainable accommodation to their students. “The joint venture model is something we have developed over the past few years, and Newcastle is the first one we have announced. They’re actively involved in shaping what that looks like. [These partnerships] are complicated and they take a long time. They’re big real estate deals with a stakeholder we’re trying to work with closely to meet both sets of needs.” In a trading update to shareholders on 8 April, Unite said it is in the “advanced stages” of agreeing a new JV with Manchester Metropolitan University to develop 2,300 beds at the university’s Cambridge Halls site in Manchester city centre for delivery in 2029 and 2030. Because of the design and complexity of JVs with universities, Lister said, Unite is aiming for larger-scale developments to ensure viability for all parties. “The great thing about the joint ventures is you have either on-campus or just aligned to the campus, so location couldn’t be better,” he said. “You have the university working with you, so the commitment to that building and to filling that building is going to be very much aligned with ours. And, generally, students want to live in university-aligned accommodation in their first year.” Revamp and reinvest Alongside university partnerships, Unite has a strategy of investing £50m a year into asset management at existing sites. The developer targets stock anywhere between 20 and 25 years old and upgrades it, providing enhanced communal spaces, redecorating bedrooms and kitchens and, in turn, bringing the prices up to market rents. Unite has initiated plans to demolish and redevelop two assets in Bristol and Southampton that it found were “inefficient”. In Bristol, the developer has filed proposals to redevelop Waverley House on Crow Lane in the city centre, which has 217 student rooms, converted from office space in the 1990s. The site comprises a six-storey, vacant car park straddled by a 16-storey tower. Unite has plans to demolish the building and car park and build an 18-storey tower with 507 student beds alongside community and commercial space. As for its Southampton redevelopment play, it has submitted a planning application to redevelop Mercury Point, its 560-bed student accommodation scheme at 20 Duke Street. The proposed development will replace the existing premises with 810 beds across two blocks connected by an elevated outdoor terrace. “Portfolio reviews are part of our business model,” Lister said. “Due to some of the affordability challenges in cities there’s a desire from us and from universities to make sure we’re not moving everything to the upper end of the price point and keeping that mid-market price point or certainly a significant proportion of our portfolio at that market price point. That does limit some of those kinds of big-scale developments. “One of the problems that the whole sector is facing at the moment is development viability. Because build cost inflation has been so significant over the past five years you need to be charging £220 a week in order to justify development, which immediately puts you at the higher end of that affordability scale.” Lister continued: “If I’m honest, the one thing I worry about now in the sector is that people are building very high-end, very expensive product. And I don’t think it’s what the markets needs or is crying out for. But on paper, that’s how you get your best returns.” Geography of growth Lister said Unite has a “whole algorithm” to determine which universities and cities it wants to work in. “We look at employability statistics,” he said. “We look at student satisfaction surveys. We look at university balance sheets and their strength. “In terms of the development pipeline, we’re in 60% in London. And then Edinburgh, Glasgow, Newcastle, Bristol. They all meet the criteria of where we want to be developing, and then we rotate and recycle assets as well. That includes ensuring that we are maintaining the quality of the assets within cities – so you’ve got the right locations – and then we do exit cities as well.” Over the course of Unite’s history, it has exited Preston, Bradford, Aberystwyth, Luton and Wolverhampton. Lister said Unite’s criteria for exiting cities is when either the supply has grown significantly or the team predicts that a demand risk is on the horizon. The PBSA sector has a reputation for being reliant on international students, Lister said. But Unite is working on providing a mid-market product that attracts domestic demand as well. “We’ve quite purposefully made sure we have offered a product which we think is mid-market and, in doing so, made it more accessible to domestic students as well as international,” the chief executive added. “So we’re currently just under 30% international. At its peak, that was probably 40% immediately pre-Covid. One of the things that we did in response to Covid was to effectively increase our marketing and work with existing UK customers as well. “We saw the risk around international students not being able to travel in those two years. Actually, that level of 30% has performed very well this year. We have obviously had a shock to international students with some of the visa changes and our portfolio has outperformed a lot of the other PBSA providers that are more reliant on international students. As a strategy, I think we’re pleased we have that higher reliance on domestic students.” One and done in BTR? In 2023, Lister told Estates Gazette that Unite would initially invest up to £200m into build-to-rent properties and was seeking JV partners for operational asset acquisitions and forward-funded schemes. Unite ventured into BTR with its debut acquisition of 180 Stratford in London, E15, which consists of 178 homes. The group said it had spent £71m on the asset as a “pilot BTR investment” which would allow it to “test its operational capability” and discover whether students living in its properties would move to nearby BTR homes after graduation. The company has not taken any other action in the sector since that initial acquisition, although Lister said the group will still consider acquiring standing assets in BTR. But he struggles to see any other part of the living sector that offers quite what student accommodation does. And as a former money man, he knows his numbers. “The [BTR] returns don’t stack up versus student – on a relative basis the student returns are more attractive,” he said. “Right now, nothing is stacking up versus student.”