Who owns student housing?

Transcription

1 Research report Who owns student housing? Winter 2013

2 Executive summary We have undertaken a comprehensive study of purpose-built student accomodation across 27 UK towns and cities and covering 70 universities. Universities own over 172,000 beds, accounting for a 55% share of the student accommodation market. Private operators own over 150,000 beds in 2012/13 (45%). Nottingham has the highest concentration of privately owned beds (79%), while collegiate university cities Oxford, Cambridge and Durham, as well as Norwich and Brighton have the lowest (less than 10%). Unite are the leading private provider, with a market share of 22%, followed by UPP with 13%. Between them, Brandeaux, Mansion Group and the former Opal Portfolio account for 24% of all private beds. Greystar s acquisition of former Opal portfolio guarantees a top five position in the market. The average market share for the top 10 private providers across the UK is 68%, with the lowest regional share just 51% (North East). Only three cities have an average starting rent of less than 100 per week. Average private rents in London start from 178 per week. Over 1.6 billion of investment activity since September 2012, accounting for 30,000 beds as investor sentiment warms to alternative sectors. Applications to study at UK universities increased by 3.1% in the year to June 2013, the highest number since Overseas student numbers are expected to increase by 15%-20% by 2018, while figures show that universities generate 3.9 billion in tuition fees from international students. * Front Cover JV development by Mace, London E1 2 I GVA 10 Stratton Street London W1J 8JR

3 Who owns student housing? Who owns student housing? Winter 13 The main focus of this report is to provide a detailed analysis of the structure of the student housing sector in the UK. To do this, we have analysed the market in 27 of the main student towns and cities, covering over 70 universities to provide a comprehensive appraisal. The research focuses on the beds available for the 2012/13 academic year, and so excludes the many schemes which are still in the development pipeline. Overall, the research has covered almost 325,000 beds in approximately 1,000 schemes across the UK. University owned beds account for 172,076 beds; equivalent to 55% of total purpose built stock and ensure that universities remain the key player within the student accommodation sector. However, over the last 20 years, the privately owned market share has grown to 45% with over 150,000. The highest concentration of beds is in London, with over 29,000 private beds out of a total of nearly 68,000. This equates to 19% of the national market in both terms of privately owned and the total number of purpose built beds. In terms of overall bed numbers, Manchester is second with 24,149 beds, followed by Nottingham (18,909), Leeds (17,503) and Oxford (15,895), although for the latter the majority of these are college or university owned beds. For privately owned purpose built accommodation, Sheffield replaces Oxford in the top five with 10,500 beds within this category adding to nearly 5,000 university owned beds, while in Nottingham, 17,807 of the total number of beds are privately owned, making this the highest concentration outside of the capital. There are some 37,000 university owned beds in London. This is followed by Oxford and Cambridge, with 14,485 (91%) and 13,055 (89%) beds respectively, thanks largely to the collegiate system at Oxford and Cambridge, as well as Anglia Ruskin and Oxford Brookes. The range of private ownership of student accommodation varies greatly across the country. In our study area there is no market with 100% private ownership. However the highest concentrations are in the main regional cities or where there has been some state transfer. The universities with the lowest share of private ownership are those based on a collegiate system such as Durham and the University of East Anglia (UEA) in Norwich where the estate remains largely on campus, housing 3,500 students in 25 units. In Brighton private owenership is less than 1%. 10 Stratton Street London W1J 8JR GVA I 3

4 Figure 1 GVA study area Student Housing by Quantity & Ownership 68,000 34,000 6,800 private privately owned uni university owned 4 I GVA 10 Stratton Street London W1J 8JR Map reproduced from GBPro 200 GB (2009 edition). MapData Colins Bartholomew Ltd (2009). Postpoint Professional 2010 Pitney Bowes Business Insight Crown Copyright 2010

5 Who owns student housing? Winter 13 Figure 2 - Private bed ownership market share 0% 10% 20% 30% 40% 50% 60% 70% 80% Nottingham Sheffield Liverpool Exeter Leeds Manchester Newcastle Aberdeen Leicester Birmingham London UK Average Cardiff Bristol Glasgow York Edinburgh Cov/Warwick Bath Southampton Cambridge Oxford Norwich Durham Brighton What are rental values? The issue of rents in student housing is an important one as many nomination agreements and investment leases are based on index linked rental increases, reducing the scope for rents to fall on a year to year basis. Based on our research, the average UK starting rent, based on the lowest price offered per scheme, was There are only three locations (Cardiff, Newcastle and Sheffield) where the average starting price for weekly rents is below 100 per week, whereas in London the average starting rent is almost 150, rising to 178 for a privately owned bed. The average spread between private and university weekly rents is 6.80, although for the dearest private accommodation in London, the difference is respectively. There are 10 locations where university owned accommodation is dearer than privately owned. The largest discrepancies were Durham ( 19.03), Brighton ( 19.75) and Sheffield ( 18.36). Who are the owners? The largest owner nationally is Unite, with 34,000 beds accounting for 22% of all private beds within the study area. Its largest market share is in Scotland at 39% amongst private beds and 25% in London where the largest concentration of its beds is located (22%). The lowest level of market share Unite has is 17% in the Midlands and 15% in the North East. The second largest provider, UPP, has a joint 22% market share with Unite in Yorkshire but is the largest in the Midlands and second in the South West and Wales (25%). Brandeaux s Liberty Living takes first place in that market, with 27%, and is also particularly strong in the North East with 24% market share. The top 10 providers have a market share within the private bed sector of 68%. Across the regions, this share falls no lower than 51%. There are three regions, the Midlands, Yorkshire and North West, where market share is above 70%, while in the South West and Wales it increases to 80%. Figure 4 - Top 10 private providers by market share 32% 2% 2% 2% 2% 4% 4% 9% 10% 22% 13% Unite UPP Brandeaux Former Opal portfolio Victoria Hall Mansion MCR Roundhill Capital Knightsbridge IQ Other Figure 3 - Average starting rents per week Figure 5 - Top 10 regional market share Average weekly rent (starting from) London Oxford Edinburgh Cambridge Bristol Durham Cov/ Warwick Exeter Southampton York Aberdeen Glasgow Portsmouth Birmingham Bath Private University Average Manchester Cardiff Newcastle Norwich Leicester Nottingham Liverpool Leeds Brighton Sheffield 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% London Midlands North East North Scotland South West East South Yorkshire West and Wales Victoria Hall UPP Unite Roundhill Capital Former Opal portfolio MCR Mansion Knightsbridge IQ Brandeaux 10 Stratton Street London W1J 8JR GVA I 5

6 Who operates student housing? While ownership is relatively clear cut between university and private provider, the operation of those units is far more diverse. Only 50% of private beds are solely run by a private operator, the other half are either run jointly (29% ), or by the university via nomination (21%) agreement or direct let. This is particularly common in markets with more than one university. In several cities such as Sheffield, Nottingham and Leicester, specific Opal buildings are allocated to each university. There is also an emerging trend of university owned beds beginning to be operated with an element of private assistance, although at 4% of all university beds, the share remains small. As universities begin to consolidate their portfolios and focus primarily on education costs, we can expect this trend to increase. Share Figure 6 - Operator by bed type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Private beds Student demand Operator Type Private Joint University University beds This year has seen a pick-up in student activity with an increase of 3.1% in overall university applications, compared with last year s decline of 7.7% which was triggered by the introduction of the new tuition fees. Overall, there were 637,456 applications, which is the highest total since UK applications have grown by 2.7% over the year to June 2013, thanks to a record high number of applications from Northern Ireland and a 3% increase from English students. EU applications have increased by 4.3% to 43,332 over the same period although this remains below the level of applications in 2009 and The growth in non EU students applying for university courses in the UK increased to a high of 64,680. The rate of growth has eased slightly to 6% compared to 8.5% in 2012 in part due to the government s general policy in reducing net migration but 2012/2013 UK and EU applications have exceeded last year s figures, numbering 512,608 and 41,580 respectively. The resurgence in applications this year suggests that the ongoing difficulties in the labour market and high expectations of employers mean that school leavers still see value in the university system regardless of the associated high costs. Figure 7 - Annual changes to university applications (June 2013) % change 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Domestic Demand Total UK EU Non EU According to data from UCAS, applications for the year to June 2013 deadline were highest for students originating from London and the South East, both of which saw an increase from the 2012 figures. 85,741 students from Greater London submitted university applications in June, up 2.5% over the year, compared with the 83,637 applications in June Students from the South East accounted for nearly 70,000 applications, an increase of 2.4% on June 2012, followed by the North West with 60,994 applications, up 2.2%. The regions with the lowest numbers of university applicants this year were the North East (19,769), Northern Ireland (20,292) and Wales (22,672). Wales was the only region to see a decline in university applicants, of 2.5%, whilst Northern Ireland and the North East experienced the greatest increases across all regions, growing by 6% and 4.6% respectively, albeit from the smallest pools of applicants. While the fall in applications in Wales is a concern, it is too early to tell if applying for university remains an aspiration for all or just the privileged. It seems that students across most of the UK have not been deterred from applying to university despite the hike in tuition fees and increased level of debt post-graduation. Figure 8 - Applicants by UK region of domicile (June 2013) Applicants 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 East Midlands Eastern Greater London North East North West Northern Ireland Scotland South East South West Wales West Midlands Yorks & The Humber 6 I GVA 10 Stratton Street London W1J 8JR

7 Who owns student housing? Winter 13 International demand The number of overseas students choosing to study at UK institutions has continued to grow over the last fifteen years. However between 2011 and 2012, this growth slowed to its lowest rate since 1997, with the number of international students growing by just 1.6% from 428,225 to 435,230. This indicates that the increase in fees coupled with the government s tougher immigration stance had some effect on the overall numbers. However, the government is now trying to address this issue and has recently announced reforms aimed at making the UK more attractive to students outside the EU. This includes measures such as allowing international students to engage in corporate internships after they graduate. Figure 9 - UK vs. international students ,000,000 2,500,000 UK International 2,000,000 Students 1,500,000 1,000, , When looking at international students broken down by EU and non EU students (see Figure 10) HESA data shows that the number of international students originating from outside the EU is rising. In 2011/12, there were 302,680 non EU students at UK universities, compared with 132,550 EU students. However, the growth rate for EU students over the past year was marginally higher than non EU students at 1.9% and 1.5% respectively. Figure 10 - EU vs. Non EU international students , ,000 Non EU students EU students 400, , , , , , ,000 50, According to the most recent HESA figures from 2011/12, the majority of overseas students came from Asia with 78,715 Chinese students attending UK universities, a 16.9% increase on the previous year. Indian students accounted for the next highest number of non-eu students, totalling 29,900 although this represented a decline of 23.5% on the previous year s number. The number of international students from rapidly developing nations such as China, India and Indonesia demonstrate the high regard with which UK universities are held on the global stage. 10 Stratton Street London W1J 8JR GVA I 7

8 We expect the proportion of international students to increase, providing government policy remains favourable, as the middle classes continue to expand in the world s developing nations. Figure 11 shows those English universities with the highest number of applications by overseas students with both the University of Manchester and University College London (UCL) receiving over 10,000 applications each (11,230 and 10,080 respectively). The Universities of Nottingham and Warwick were the next most popular, receiving over 8,000 applications from international students in 2011/12. London School of Economics and Political Science (LSE) accounted for the highest concentration of all overseas applications at 67%, followed by London s Imperial College London and University of the Arts, both accounting for 41%. The next highest were also London-based institutions (UCL and City University both at 39%) demonstrating the capital s strength in attracting international recognition as a centre for educational excellence. Figure 11 - Top 25 universities for overseas student applications Students The University of Manchester University College London The University of Nottingham The University of Warwick The City University University of the Arts, London The University of Oxford King's College London Imperial College of Science, Technology and Medicine The University of Birmingham University of Bedfordshire London School of Economics and Political Science The University of Sheffield Although ten of the universities featured in Figure 11 are located in London and the South East, several universities in the Midlands and the North are also popular amongst overseas students, including Birmingham, Warwick, Sheffield, Leeds and Newcastle. Of the 25 most popular universities with overseas students, 11 are ranked in the 2013 Guardian top 30 higher education institutions, including UCL, Warwick, Imperial, LSE, Oxford and Cambridge. In 2011/12 the government estimated that overseas students studying at higher education institutions in the UK paid 3.9bn in tuition fees and 6.3bn in living expenses. The government is seeking to promote an increase in the number of international students figure will increase by as much as 15% 20% over the next five years to Based on this anticipated scenario, tuition fee income would increase from 3.9bn in 2011/12 to 4.4bn in 2020 (based on current tuition fee levels) and living expenditure would increase from 6.3bn in 2011/12 to 7.7bn on Coventry University The University of Cambridge The University of Southampton % of overseas students (RHS) Number of overseas students (LHS) The University of Leeds Middlesex University The University of Newcastle-upon- Tyne London Metropolitan University The University of Westminster The University of Greenwich University of Hertfordshire The University of Exeter Sheffield Hallam University 80% 70% 60% 50% 40% 30% 20% 10% 0% Share % Investment market Since September 2012, there have been at least 1.6 billion of investment transactions within the student housing market, accounting for over 30,000 beds with an average yield of 6.23%. The majority of deals have been between 10 million and 60 million, although the demise of the Opal has seen some recent high profile large scale purchases by American operators looking to get a firm foothold in the UK market. Investor appetite for non-traditional sectors such as student housing continues to increase with the allure of long leases with index linked increases offering better income potential than traditional commercial property. According to IPD, the alternative sectors accounted for 11% of the 109bn total index in H1 2013, compared to just 4% a year earlier. Legal and General is expecting to increase its allocation into alternatives to 20% by 2020, while AXA REIM this year established a fund focused solely on alternative sectors. But it is not just direct investment in the sector which has seen strong appetite. Earlier in the year, UPP launched a bond issue to raise 385 million which was oversubscribed by 100%. Having placed 51.2 million of shares in June this year, Unite is now in the process of raising 90 million in bonds to assist its regional development strategy also saw the establishment of the UK s first student accommodation REIT, GCP Student Living, having raised 70m and securing the 588 bed Scape East scheme in east London. million Figure 12 - Main investment deals October 2012 October Value m Yet while there have been many positives in the sector in 2013, there have also been some negatives. The Liberty Living fund run by Brandeaux has been suspended since August due to uncertainty in the market, triggered in part by the collapse of the Opal Property Group, which GVA research suggests was the fourth largest private student accommodation provider in the country. Yield 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Yield 8 I GVA 10 Stratton Street London W1J 8JR

9 Who owns student housing? Winter 13 More recently, the Mansion group fund has also been suspended. It is important to stress that it is not the product that is at fault for these issues but the structure of these funds and problems that arise with the withdrawal of cash reserves via cash redemptions. The most obvious route available is refinancing instead of disposals. Based on GVA s estimates, nearly a quarter of the UK s private student accommodation is affected, leading to the potential for a significant change in the composition of the market if the second option is taken in the worst case scenario. The breaking up of the Opal portfolio by administrators as a result of its 900 million debt has attracted significant interest from overseas operators looking to quickly establish a sizeable foothold within the UK market. Most recently Avenue Capital Group from the US paid 245 million for 4,539 beds from Opal in Manchester, Leeds, Greenwich and central London, having already acquiring 1,800 beds for 100m earlier in October. At the same time, Greystar, one of the largest operators in the US with over 59,000 beds, paid 300 million for 7,100 beds including sites in Manchester, Leicester and Huddersfield, with a total projected income of 32 million. Across the portfolio, there is a mixture of operating schemes as well as development sites. Development outlook One of the concerns which have risen from the fallout from Opal, Brandeaux and now Mansion Group was the issue of oversupply in some regional markets within the sector, as well as the establishment of a two tier market between London and the South East and the rest of the country. In last year s report, GVA raised concerns over local authorities in London in particular using community infrastructure levies (CILs) as a way of controlling development, while improving fortunes in alternative land uses could also trigger a move away from student housing. Recent figures from EGi suggest that these concerns have come to fruition as the number of planning applications for student housing in London in the six months to June 2013 were half that of the same period a year earlier, while the number of permissions fell by 22%. Average house prices in the capital are now 5% higher than during the peak of the market in late 2007, reducing viability for some student accommodation schemes, while boroughs such as Islington and Southwark have increased CIL demands and affordable housing requirements for any major student development in an attempt to control growth. Despite this, recent moves in the market suggest that development activity is likely to remain buoyant. The recent arrival of the new major American operators is likely to act as a catalyst for further development as these brands seek to develop their own stock to gain greater market share, while Chinese investment into the sector is also likely to increase. Since September last year, at least 6,000 potential beds have been forward funded across the country, while Lend Lease have signed a deal with Manor Property Group to provide up to 40,000 beds with 3,500 to be built in the first of five projects worth 240 million in Birmingham, Leeds, Manchester and Sheffield. 10 Stratton Street London W1J 8JR GVA I 9

10 Conclusions While universities remain the largest stakeholder in the purpose built student accommodation sector, the impact of private bed providers upon the market has been considerable. Within the space of 20 years, the private market has grown in size from nothing to over 150,000 beds, accounting for 45% of bed spaces. It is certainly realistic given current rates of development and investor activity to suggest that private operators will overtake universities in terms of bed numbers over the course of the next five to 10 years. Yet while the nature of ownership has been changing, control over operational management remains a crucial concern for universities. Almost 75% of all purpose built accommodation is operated in some way with university involvement and it is important for them to keep a hands-on role to ensure that the student experience is the right one for those under their care. Higher education is now a globally competitive industry. Overseas students play an important role for universities but at the same time, domestic expectations are so much higher under the new fees regime. Following the introduction of higher tuition fees in 2012, it is encouraging to see that applications from national and international students have increased for The government has recognised that higher education is a fast growing sector and a particularly strong export for UK plc. The number of overseas students is expected to rise by as much as 20% over the next five years, which will have a significant bearing on demand for student housing if the number of UK students also continues to stay steady or rise. The year so far has been an interesting one for the student housing sector. There has been a huge degree of investor appetite for indirect investment into the two leading private operators, Unite and UPP. Yet at the same time, three other major national operators have seen funds suspended (Brandeaux and Mansion Group) or go into administration (Opal). As much as 24% of the UK s privately owned student accommodation is affected as a result. But it is important to highlight that it is not the product that is at fault in these situations. The scale and speed at which the major American firms have taken over the Opal portfolio in order to establish themselves quickly in the UK market lends support to the credentials of the sector, as too does the high number of forward funding investment deals that have taken place since last September. Student housing is still an evolving sector, therefore is expected some degree of volatility to be ironed out, particularly in relation to the structuring of funds. This will reduce as the market moves towards a greater degree of maturity. As well as investment from overseas, the sector is starting to attract more interest from UK institutional investors looking to diversify from traditional commercial property promises to be an interesting year for the student housing market. 10 I GVA 10 Stratton Street London W1J 8JR

11 Who owns student housing? Winter Stratton Street London W1J 8JR GVA I 11

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