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Student Accommodation Research: Q3-2020 Market Update

Posted by Richard Ward

Supply of Accommodation

Although more than 23,000 new beds are due to be delivered this year, "structurally undersupplied" is how many market commentators describe the student accommodation sector. Whilst there is no doubt that growth in purpose-built student accommodation (PBSA) has failed to keep up with growth in demand, it is too simplistic to conclude that this leads to a shortfall in beds.

Houses in multiple occupation (HMOs) are estimated to equate to at least 55.4% of all beds in the market in 2020, with the figure increasing to 70.9% if you only consider private accommodation. These proportions highlight how the market still relies on traditional student houses to meet its accommodation needs. Not only does this type of accommodation provide the largest share of beds, for many students it is a much more affordable option, with PBSA simply out of reach of most students due to the higher price point.

If demand is compared to the provision of PBSA to determine if a market is under or oversupplied, then all university towns and cities have a shortfall of accommodation.

However, this is clearly not the case, with certain locations already oversupplied due to an influx of private PBSA relative to demand growth. Therefore, stakeholders must assess the market as a whole, along with other metrics such as price, existing supply, pipeline, etc to ascertain if a market has attractive fundamentals.

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Latest UCAS Update

The latest data from UCAS, released 5 days after results day, shows a slightly worse picture than last week. Acceptances from UK students have risen by 1.3% (+2.9% on results day), whilst placed students from outside the EU have grown by 1.4%. Whilst UK numbers are positive for the first time since 2016, non-EU figures are down relative to the year-on-year growth reported in 2018 (2018: +5.8%).

Meanwhile, acceptances from EU (ex-UK) domiciled students have collapsed by 13.2%, albeit they so far equate to just 5.3% of the total so the impact is less severe than it first seems.

Although growth in non-EU students will be seen as positive for the industry, particularly as there were concerns that they could fall this year, growth remains highly uneven. At higher-tariff universities, non-EU placed students have risen by 7.2%, whilst at medium and lower tariff institutions they have declined by 10.2% and 7.3% respectively. Whilst the flight to quality trend is not new, it appears particularly acute this year and again highlights that national trends can hide significant local variations.

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Source: UCAS

Market Seasonality

In the last three months (Apr-Jun) the market became skewed towards smaller sizes. Combined, 1-bed flats and studios equated to 37.0% of all searches on, up from a figure of 33.6% reported in the previous quarter.

Whilst it might be assumed the increased demand for this size is due to Covid-19, as it provides students with the ability to self-isolate, this is not the case. The increased popularity of smaller sizes is attributed to usual market seasonality, with no material increase reported year-on-year.

In comparison, clusters and HMOs containing at least 3 beds, captured 37.0% of searches on the platform during Q3-2020 (Apr-Jun), whilst 26.0% of demand was attributed to 2 beds.

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Due to Covid-19, planning application activity was subdued in the last quarter with comparatively few beds either submitted or approved. The most notable updates include the approval of a 702-bed development in Nottingham, whilst Unite Students was given the green light for its 400+ unit development in Bristol.

Of those new applications submitted in Q3-2020, the largest was a project proposed in Coventry and contains 435 beds, whilst three separate developments were put forward in Leeds containing between 210-411 units.

In total, applications totalling just shy of 3,000 beds were put forward in the last quarter, whilst more than 3,500 were granted planning permission.

The extracts above have been taken from our Quarterly Market Reports covering all major university towns and cities across the UK and Ireland.

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