Why there’s plenty more growth in student beds

COMMENT: At Peel Hunt, we have long been advocates for the purpose-built student accommodation sector but, in our minds, conditions for growth and success are only getting better. The current supply-demand crunch is well-documented and there’s no sign of this abating anytime soon – especially in those cities where the strongest universities are and demand is highest. Recent UCAS figures show application numbers remain 3% higher than in 2019, despite having dropped slightly compared with 2023, and international student numbers remain robust, notwithstanding the well-publicised changes to visas. Demographic growth is also favourable to market conditions, with the number of 18-year-olds set to increase by 16% by 2030, while UCAS expects that UK higher education applications will rise to one million a year by 2030. Similarly, the state of university finances is an ongoing feature in the news, but perhaps this could also provide opportunity for PBSA operators. Alongside the expertise, they also possess the capital required for the new and refurbished student accommodation that universities so sorely need. Financial challenges aren’t universal of course. A flight to quality is very clear, both in terms of the accommodation providers and the universities themselves. As the cost of going to university increases, the desire for higher standards from students is also apparent. Gone are the shared-flat-horrors of our youth. Instead, students (and their parents) are seeking a product that combines high-quality accommodation, security and pastoral care, alongside seamless services from laundry to the delivery of parcels, and top-tier amenities from communal areas, karaoke rooms and gyms. This is exactly the sort of accommodation the likes of Empiric Student Property and Unite Students provide, and they are also among the best-performing listed real estate companies in recent years. That said, we recognise that going to university doesn’t come cheap. There are price considerations that, again, weren’t a factor in our day, but it’s clear that students continue to see the value of education, as represented by recent application numbers and demand for homes. On a stand-alone basis, the costs look substantial, but when you take into consideration inflation or compare the rental growth of student accommodation compared with the private rental market, you start to get a different story; a story that points to long-term sustainable growth for successful PBSA companies but also an offer that keeps the consumer in mind too. The early signs from the new Labour government are so far suggesting a broadly favourable environment for both higher education and student accommodation, which supports the strong fundamentals we see for the sector – in marked contrast perhaps to what we have seen in recent years. We clearly aren’t alone in this view. Unite Students successfully raised £450m of new equity last month – the second largest in the sector since 2020 – reflecting strong investor demand and confidence in the growth opportunity. Asset valuations in the sector have stabilised, with rental growth helping to soften declines over the past 18 months and we remain optimistic that from here values should move higher. The first Bank of England interest rate cut in four years also cements this position, and we see exciting opportunities ahead for well-capitalised and operationally focused businesses in this space. Recent history may tell us that it won’t all be smooth sailing, but with greater political and economic stability, we expect to see student accommodation remaining top of the class for some time to come. Matt Saperia and James Carswell are real estate analysts at Peel Hunt Photo by Emily Ranquist/Pexels