Last week we attended the 2023 Property Week Student Accommodation Conference. The main message of the day? Affordability and undersupply, but how is the sector addressing these issues? We look at some of the topics that will be debated in 2024.
1. Supply and Rising Rents
It is well-known in the market that there is a growing number of UCAS applications in UK universities (both from domestic and international students) which has resulted in the demand for student accommodation being higher than ever before. Combined with rising interest rates leading to higher debt costs, increasing construction costs, and a lack of new development planning, this has exacerbated the issue of undersupply and therefore rent increases. This is not dissimilar to the rest of the living sector, but is the student accommodation losing sight of its customers?
Affordability of accommodation is a continuing issue for students seen through record rises in student rents in many UK cities. At the conference it was reported that in some cities, rents have hit a staggering £1000 per week, which takes student accommodation into another level. The UK has seen a record rise in student rents, and this, coupled with the cost-of-living crisis, means that more students are making the decision to study at home, as student accommodation is no longer within their target price bracket.
2. HMOs
HMOs are a vital part of the student accommodation mix, making up around 50%. With the progress of the Renters Reform Bill, which will allow students tenants living in private HMO houses to terminate their tenancies on 2 months' notice rather than having to wait until the end of their fixed term tenancies to vacate, it is anticipated that there will be a decline in landlords willing to rent to students, as the changes may reduce stability and income for landlords. This will add to the undersupply issue and create even more of a demand for PBSA, as HMOs have been a preferred route for much of the domestic audience, given PBSA does not provide enough supply, nor does it provide an affordable alternative.
3. Hospitality and PBSA
While there is a focus on weaving hospitality into the PBSA sector so that students and their parents can see the value in PBSA sites, the sector will need to provide greater value for money to justify the higher rents. Free breakfasts, networking and career events, adequate gyms and cleaning services are all hospitality benefits that developers are offering to enhance the student experience. As much as moving more towards the hospitality sector has its merits, in what context and how do we ensure PBSA caters sufficiently for a diverse and segmented student audience from under-grads to post-grads? Taking the hotel sector as an example, it is segmented by consumer brand experience and budget which allows consumers to clearly identify what meets their needs and pockets. As the PBSA sector continues to mature, this could support the need to differentiate products with price, amenity and level of comfort.
Similarly for service (again linked to the hospitality sector) the importance of having a well-structured, trained and attentive operations and management team was seen as critical, as these are key to optimising the student experience and maintaining high standards. But how does this sit with PBSA as opposed to trying to emulate the service levels of a hotel?
4. Technological Innovation
Technological innovation and greater use of data were seen as important for the future of the PBSA sector both from an operational and an experience perspective. Students are already very tech savvy, so the question is what needs to be integrated within the operations that make a difference, but which also provides value for without increasing costs. For operations, what realistically can be done to save energy, other than transparency? Using data to educate and inform students and parents about potential cost savings is key.
Key points we took from the conference for 2024 is that the sector is strong and investment levels are high, with funding is expected to continue. Innovation from both existing and new entrants in the market is driving differentiation to attract a wider and more diverse audience. We have seen resilience from developers and investors in 2023 who are looking at different funding models, sustainable design and construction and therefore smart planning.
We look forward to discussing some of the issues relating to the real estate lifecycle of a PBSA in more detail in 2024.
For further information please contact our dedicated student accommodation team https://www.howardkennedy.com/expertise/sectors/real-estate/student-accommodation
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