Each year, StuRents' research and insights team compiles a Student Accommodation Annual Report. Our report analyses millions of data points to compile a balanced, holistic view of the student accommodation marketplace over the past 12 months and to project future trends. This year, we shared our findings at our annual report webinar on Wednesday, 30 November 2022.

Here are the highlights from this year's report:
The pace of growth in the student housing sector jumped to 7.5% in 2022, compared to pre-pandemic growth of just 3.9% in 2019. In real terms, this meant around 1.5 million students needed housing in 2022.

Interestingly, UCAS acceptances were down by a full per cent year-on-year compared to 2021. However, the 2021 figures have been shown to have been inflated by generous teacher grading during the pandemic, when students couldn't take their exams. Comparing this year's acceptances to pre-pandemic figures, we see an overall growth of 1.4% compared to 2019.

A lot of recent growth in applications and acceptances, especially during the pandemic, can be seen in the mature student and post-graduate space. In fact, post-graduate applications were way up in 2022. By way of example, the University of Hertfordshire experienced a 330% increase in applications since 2015 - around 5000 new post-grad students.

Location, location, location

Overall, growth in the sector looks stable. However, at a local level, data for individual institutions tells a far more nuanced story. For instance, compare York St John with London Metropolitan:

Generally, more prestigious universities have outperformed the market. For example, the number of full-time students at Russell Group universities have grown at a faster rate than than at all other institutions.

Home & Away

One of the UK's biggest exports has always been education, and this year has proven strong in terms of international student applications. Growth in the rate of students applying to UK has surged in 2021, with 164% more student visas issued to Chinese students in the third quarter of 2021 Q3 than in the same period of 2010.

Growth in the number of Indian students has also been significant this year, at 105% in 2021 vs 2010.

However, Covid and the lingering post-pandemic uncertainty have dampened students' appetite to travel, so the uptake of these visas has not matched the initial demand.

Demand by accommodation type

Broadly speaking, public perception of student accommodation tends to focus heavily on purpose-built student accommodation (PBSA accommodation), often to the near complete exclusion of houses of multiple occupation (HMOs). However, this filtered view doesn't match the reality for most students in the UK, especially domestic students, who tend to prefer HMO over PBSA. Part of the reason for this preference can be attributed to the lower cost of HMO, which averages £113pppw outside of London.

Demand for each type of accommodation follows distinct seasonal changes: Typically, 70% of HMO accommodation has been let by March, with search volumes for shared housing reaching their peak during the preceding November. Because these searches are conducted by students looking for accommodation up to a year ahead, this activity takes place very early in a season that sees the bulk of its activity between October and March.

Essentially, the PBSA season graph is the inverse of HMO with only around 24% of PBSA enquiries happening before the end of March. The typical PBSA season peaks in the August preceding the next academic year, just a few weeks later. PBSA also tends to cost more than HMO, at an average of £165pppw outside of London.

Total supply

We've discussed the national perception that student accommodation = PBSA, but this simply isn't the case. To paint a clearer picture, it helps to understand the ratio of PBSA to non-PBSA accommodation.

The total national supply of PBSA amounts to around 717,000 beds, and is mostly managed by private operators. This sector has seen growth in the order of 150,000 beds since 2016. This growth, too, has mostly been developed by private operators. Non-PBSA student accommodation, on the other hand, has grown by more than 200,000 beds since 2016.

As we'd expect, occupancy is a key driver for rental growth overall, with the growth in PBSA rents averaging 3.1% vs 5.2% growth in HMO rents.

Looking ahead:

Based on the data we've reviewed for 2021 and 2022, and our analysis of the current student accommodation development pipeline, we start to see a picture emerging of the sector's outlook for the year ahead. The majority of this pipeline is skewed towards private operators, demonstrating increasing reliance on the private sector.

This also means the proportion of beds provided by universities is going to continue to decline.

Even so, only around 17,000 PBSA beds were actually delivered in time for the 2022-23 academic year, with 81% of these delivered by private operators. This points to a significantly slowed delivery of beds in the PBSA market.

PBSA growth also shows significant variance by location, as shown in the comparison table below.

Unit mix

The student accommodation development pipeline is skewed towards studio units (about 41%), which tells us the market is focused on international demand, rather than domestic. Our search data reveals that international students tend to look for studio or PBSA accommodation, while domestic students prefer house shares with as many as four or more rooms. It seems these students are not being considered in development pipelines. Given the new PM's recent stance on international vs domestic students, it will be interesting to monitor the results of this bias in the year ahead.

In summary

• This year's data shows positive fundamentals in the sector, which is pleasing after the recent ravages of covid and political uncertainty - positive for investors and property managers, but challenging for students
• At a national level, the outlook is bullish
• Demand is rising, whilst the delivery of beds is slowing
• Macro fundamentals are bullish, but consider microdynamics, too
• Student accommodation looks set to become increasingly unaffordable
• And don't underestimate the role of HMOs
• As ever, it's key to consider location specifics, which vary widely and rarely reflect national trends.

Get the 2022 StuRents Annual Report on Student Accommodation

You can watch the webinar here.

Click here to download the report

Panel Discussion - Q&A

Q1 - A lot has changed in the capital market since the mini budget in September. How has the finance financing landscape changed since then? And what implication has this had on the development of new builds?
There have been a lot of changes in the financing market over the past year, and this includes financing costs, which have gone up quite significantly. The Bank of England base rate is now 3% - up from close to 0%. Also, the SONIA swap rate, which is generally used in many investment loans, has gone up from the long-term average of around 60bps to 400bps. The start of the year was was very busy: there were a lot of refinances happening to take advantage of breaks while they were still low. Now, what we're seeing is that serviceability has been restricted, particularly for low-yielding assets. That's because finance costs have increased quite significantly, sometimes by over 50 to 75%. The assets with the lowest loan-to-value ratios (LTVs) have been the low-yielding assets, typically London assets with yields around 3%. It's difficult to get over 40 or 50% LTV as the income isn't sufficient to service the debt. So the leverages have had to come down. We're still seeing quite a lot of liquidity in the lending markets with banks. But banks are being less aggressive than they were earlier on this year.

Q2 - How have rates and utilities and financing costs impacted student accommodation businesses, what can be done to mitigate this, and how are these fluctuations impacting student affordability?
PBSA building owners are feeling the pressure on yields and students are feeling the pressure from essential rent increases. The rents being paid now where were signed up to some time ago, but everybody's just releasing their rates now further 23/24 academic year - and there is definitely going to be a significant increase, which is obviously expected. Many are budgeting for a 30% increase, which probably represents a five to 10% percent increase in operating costs.

To mitigate those factors, many building owners, landlords and investors are working hard on improving the energy efficiency of the buildings: trying to identify areas where they can reduce energy usage, educating students on the energy usage, working on staff retention, finding more cost-effective contractors and refining sales and marketing processes to try and keep those buildings at 100% occupancy.

For HMOs, it's equally true that most of the rents students are paying this year were set last year. So in the short term, taking into account increasing costs, the current economic volatility is having a generally negative impact on HMO businesses. To mitigate the impact, most landlords will be realigning rents for the next academic year. There's also a strong drive in the sector to "go green". That means factors like smart controls, solar power and so forth.

Q3 - Outside of China, are there any other countries where we can expect to see similar increases in student demand?
Not taking into account recent government announcements on international students, China continues to be the UK's largest source of international students, and that's unlikely to change in the face of projected Chinese growth in the order of 2.9 million households by 2040. However, India is a strong second source of international students. The percentage of households in India with the income to consider a UK education is growing at a faster rate than in China, which means we expect to see growth in the percentage of international students from India over the next decade. A number of HMOs are now reporting an increase in students from Nigeria, too, with some reporting as many as 7% of their tenants being Nigerian.

Q4 - Do international students prefer clusters, and are searches happening at lower price points? Are you seeing demand for studios or as a bit of a mix?

Student accommodation operators tend to see lower search price points for Indian and Nigerian students than among students from the Far East. At higher price points, students tend to be searching for studio properties, while at the lower end, we see searches for clusters and various combinations.

Q5 - How important are environmental, social, and governance (ESG) factors to students? Are you noticing they are more concerned?
Property managers have reported that ESG initiatives are not having as big an impact as one might expect. This may be influenced by cost: it's possible that students would like to take ESG factors into consideration when choosing a property, but simply can't afford to. Obviously, you will always have those who are very keen.

Q6 - Which locations are particularly active from a development or acquisition perspective?
There's quite a lot of activity in London at the moment - particularly with office buildings on the fringe of the square mile location. We typically haven't seen that for student accommodation before, and previously these wouldn't have been properties you could get planning consent for. But that's changed over the last six months or so. There are a few office buildings coming up for vacant possession within the next year or two, which gives developers time to get getting planning permissions. These buildings tend to be quite discounted in comparison to where they were just a few years ago.

Q7 - There are various headwinds in the HMO sector, whether it's rising cost or the renters' reform bill. How is this likely to impact the HMO market? And will HMO remain a viable alternative to PBSA?
There are three main headwinds at the moment, and each has slightly different timing.
First of all, short terms cost increases related to the energy and economic challenges facing the country are having an impact.

Secondly, the Rent Reform White Paper is causing nervousness in the sector, and there's some uncertainty around the timescales, though most agree it's likely to come into play over the next year or so.

Thirdly, a factor that's not talked about as much is the environmental side and the need to be an EPC C or above for new tenancies from 2025.

These three factors all have a potentially negative impact and will likely have a reduction in supply for the HMO market as people either sell out or look at using their properties in the wider property rental sector.

Education is one of the UK's great exports, but public thinking can sometimes be somewhat focused on PBSA and overlook the key role played by HMO in the sector. Ideally, PBSA and HMO need to work together, so that we can talk about it as an overall student accommodation sector.

Q8 - Is there any data available that would address the loss or estimated loss of HMO properties over the last couple of years?
The number of student properties we would classify as non-PBSA has been rising. That's very highly correlated actually to growth in domestic units, though it does vary. Again, if we look at certain locations, as highlighted in the annual report, somewhere like Nottingham, for example, had a huge growth in base, UK and international students. Whereas, if you consider somewhere like Plymouth or Southampton, the data appears to show the opposite. Markets are reacting to declining demand, particularly from the domestic market.

It's difficult to give exact numbers because there is a lack of quality data. But the data we have explored from a national standpoint points to an overall increase in HMO rather than a decline - with the caveat that this data varies significantly across locations.