Why Student Accommodation will be resilient if there is a Brexit

Transcription

1 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT Why Student Accommodation will be resilient if there is a Brexit 1

2 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT Why Student Accommodation will be resilient if there is a Brexit The property market is currently experiencing uncertainty in the run up to the referendum. In previous turbulent markets, yields in student housing have proved less volatile than other sectors. This is a good moment to consider how student accommodation could be affected by Brexit and how resilient it will be to such a change. CBRE Research 2

3 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT HOW HAVE UNIVERSITIES RESPONDED TO THE POSSIBILITY OF BREXIT? On 21 February, 103 Vice Chancellors of UK Universities signed an open letter to government ministers. It said: While no-one is suggesting that UK universities could not survive outside the EU, leaving would mean cutting ourselves off from unique support and established networks and would undermine the UK s position as a global leader in science, arts and innovation. Universities clearly foresee negative consequences of Brexit for Higher Education. This is seemingly more to do with loss of research collaborations, which could weaken their reputation for research, than it is to do with direct loss of funding from EU sources or tuition fees from EU students. According to HESA 2014/2015, only 2.5% of UK University funding apart from tuition fees comes directly from EU sources. Some 31.6% of university funding comes from course fees from UK and EU students ( 10,481m), although EU students represent only 7.62% of this total ( 800m) out of the total university revenues of 33,167m. Those with an interest in the sector would do well to note that the UK University lobby seems overwhelmingly supportive of remaining in the EU. Figure 1: University Income Sources Source: HESA publication 'HE Finance Plus 2014/15 HOW WILL STUDENT VISAS AND RECRUITMENT BE AFFECTED? EU, EEA and Swiss nationals do not currently need to apply for permission to live, work or study in the UK. Brexit would almost certainly mean more stringent visa requirements for EU students, and their ability to work here after university. If they are treated like Non EU students, they would need to seek immigration permission to come to the UK. UK universities could also lawfully charge them higher tuition fees. EU students currently pay the same rates as students from the relevant country. This means 9,000 per year in England, zero in Scotland, and in Wales benefitting from a non-repayable tuition fee grant of 5,810 towards fees of 9,000 per year. If they were treated like Non EU students, they could expect to pay fees of between 12k- 36k/year. By comparison, undergraduate tuition fees in most EU countries are very low, ranging between zero and 2,000 per year. CBRE Research 3

4 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT Accommodation is typically much cheaper in continental Europe as well. So higher fees would further polarise continental Europe and the UK and choke off some demand on grounds of cost. However, EU students represent only 6% of all full-time students in the UK. This low proportion is due primarily to the significantly higher fees and accommodation expenses here compared to most European countries. More stringent visa requirements and higher fees would almost certainly reduce demand from EU students, but our university system is still heavily oversubscribed. According to UCAS, in 2015, for every place accepted by an EU student and a Non EU student there were 7.3 and 7.9 applications from overseas students respectively. Cost is therefore clearly not the only consideration for international students the high quality research environment, ability to be taught in English, cultural factors and educational reputation are all powerful attractions. Currency devaluation, a likely consequence of Brexit, could also make the UK, and especially London, seem like better value. Although Brexit would very likely mean a reduction in the recruitment of EU students, our higher education system s overall dependence on them is low. Strong demand from other categories of students outside of the EU means the system is likely to be quite resilient to such a change. WHICH TOWNS COULD BE WORST AFFECTED? Due to the favourable tuition fee treatment in Scotland, some of the highest populations of EU students are in Scottish university towns. These towns predominantly have higher than the national average of 6%, examples being Glasgow (10%), Edinburgh (12%) and Aberdeen (16%). Brexit could mean that these rental markets are most likely to feel the pinch, especially 100% studio schemes geared primarily to overseas students. However these towns also attract above average concentrations of Non EU students, and are likely to be able to make up the shortfall that way. London also has above average exposure to EU students, at 10.2%, and its purpose-built student accommodation tends to be even more heavily geared towards overseas students than this. Higher ranked universities tend to attract more overseas students but they are also best placed to backfill any reduction with other students. Lower ranked universities will therefore be more vulnerable to a reduction. Student accommodation income streams have proved defensive precisely because they are strongly diversified and not dependent on one stream of student demand. For example, in response to the well-documented forthcoming dip in the UK population of university age, the government have already allowed universities to remove the cap on the number of UK undergraduates they can recruit. Many universities have also stepped up their overseas recruitment campaigns already. Figure 2: Number and Proportion of EU Students by Town Number of Students (2014/2015) 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: CBRE/HESA Glasgow City City of Edinburgh Aberdeen City Coventry Oxford Manchester Cambridge Birmingham Southampton Canterbury Nottingham Brighton and Hove Cardiff Colchester Leeds Sheffield Bath and North East Dundee City Newcastle upon Tyne Fife Lancaster Leicester Exeter Guildford Poole Bristol, City of Portsmouth Salford York Central Bedfordshire Other EU (LHS) Proportion of FT Students from the EU (RHS) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Proportion (2014/2015) CBRE Research 4

5 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT HOW ARE INVESTORS RESPONDING? The most active parties in the student investment market are currently the UK sector specialists. Uncertainty surrounding the implications of Brexit is a concern for some institutional investors (see Heading for the Exit, February 2016 pp 19-20, CBRE Research) who are delaying investment decisions until after the referendum. Some recent major portfolio deals tend to indicate that larger international investors are undeterred by the referendum, and are still attracted by the stable income profile of UK student accommodation. The sale of the Ardent/Mansion portfolio of 25 student accommodation assets to Mapletree for 417m is one such example. Canadian Investor Brookfield has also recently purchased the Rose Portfolio of 13 student accommodation assets for 432m. Investment in student housing from the Eurozone into the UK was insignificant in 2015 with only two deals with a value of around 24m having closed. However, there are a number of UK-based investors and operators currently seeking expansion into the Eurozone. Achieving this could be much more difficult if Brexit meant a significant devaluation of sterling. Many of these companies are backed by US-domiciled or other investors, though, and are less likely to be affected in the same way. WHY STUDENT ACCOMMODATION SECTOR IS LIKELY TO PROVE RESILIENT The great unknown is how Britain s property investment market will be viewed by investors if it is independent from the EU. The student accommodation rental market is well diversified and will potentially prove more resilient to Brexit than commercial property, where there is considerably more uncertainty around occupier decisions. And if the rental market remains stable, the student accommodation investment market is likely to follow suit and prove less volatile than commercial property, as in previous downturns. Figure 3: Direct Let Student Net Initial Yields compared with IPD All Property % Source: CBRE/IPD Central London Super Prime Regional Prime Regional Secondary Regional IPD All Property CBRE Research 5

6 WHY STUDENT ACCOMMODATION WILL BE RESILIENT IF THERE IS A BREXIT Source: Fusion Students, Empiric Student Property Contacts To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Jo Winchester Senior Director Student Accommodation Valuation Advisory +44 (0) Tim Pankhurst Director Student Accommodation Valuation Advisory +44 (0) Tim.Pankhurst@cbre.com Oli Buckland Director Student Accommodation Capital Markets +44 (0) Oli.Buckland@cbre.com Jonathan Mackie Analyst - Student Accommodation Valuation Advisory +44 (0) Jonathan.Mackie@cbre.com Joanne.Winchester@cbre.com Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.