Emerging Markets: Student Accommodation Success Factors

Sean Hughes
Cardiff has seen a dramatic increase in purpose built student accommodation (PBSA), which has emerged as one of the most prominent sub-sectors for property development over the UK in recent years.

Universities in the UK have seen student numbers grow considerable of the last two decades, the quality education has also increased so it is now not just the education that is judged when choosing a university but also the standard of accommodation. Cities such as Cardiff that demonstrate a strong higher education offering but had a low-quality supply of purpose built student accommodation has provided an investment opportunity to property developers and pension funds alike.

There are a series of ‘success factors’ which can be attributed to the success of this residential sub-sector development within Cardiff and other cities alike:

Success Factor 1 – Strong Higher Education Offering

Cities with an established further or higher education offering that produce year on year good grades, will attract students to the university and in result the city. This of course creates the demand within that city for suitable student accommodation. Cities that are home to Russell Group Universities such as Cardiff will always have a strong annual intake of students from a domestic to an international basis.

Success Factor 2 – Students and Right Model

The second success factor to enable the student accommodation to flourish is simply students. Students are required to fill the beds of the developments and providing the right product is delivered (i.e. deliver what the students want), this will ensure the students visiting the city to study, will take up the development in favour of others purpose built student accommodation or private rented accommodation.

Success Factor 3 – Location / Suitable Development Land

Success of a student accommodation development and its ongoing success will very much be determined and underpinned by its location within context to the city centre and the universities. Providing high quality accommodation with good access to transport links, shops (or amenities), and social spaces will make the development popular with students coming into the city and therefore provide a secure investment for development. Long term take up in beds, means long term returns on investment.

Success Factor 4 – Under Developed Market

The imbalance between supply and demand in favour of the demand will naturally create a development opportunity in any sector. Regional cities such as Cardiff with limited PBSA but a strong higher education offering has created the imbalance and the overall attraction to the developers. This has led to the dramatic increase in student accommodation developments within the city within the last two to three years. This has been demonstrated in the values of the rental growth for the city has seen: according to James Pullan (Knight Frank Student Property Lead), Cardiff topped the table for rental growth at 5.80% for student accommodation rents (London and Birmingham demonstrating 2.46% & 3.18% respectively). The demand for such beds within the city is what has driven the market within Cardiff, which in result has enabled PBSA providers to demand such high rental values.

These factors above can be attributed to many other sectors of development. With demand, there is opportunity.

Other Emerging Sectors

Property development goes through cycles of favoured sectors and there will always be a need for developers/pension funds/investors to understand what the next trend in the market is.

Other sectors that are tipped to develop over the forthcoming years:

Private Rented Sector (PRS)

The PRS sector is a developing residential model within the UK, which is well developed in countries such as Germany and the United States of America. PRS is essentially a new sub-sector for residential development, with the sole purpose for the rental market only, and not for sale. The asset would be managed by a singular management operator.

In a world where the cost of buying or renting is becoming more and more expensive, developers/investors find themselves with an opportunity to provide an accommodation product that provides affordability and flexibility to its prospective tenants. The PRS model leans towards a young professional demographic that find themselves looking for comfortable and affordable accommodation within an urban setting, while providing developers with long term capital gain while also providing secure long term returns on the investment. The PRS model will undoubtedly grow if cities like Cardiff can continue to create prosperous jobs that will attract the businesses and professionals to the city.

Care Homes

With a forever aging demographic within the UK, there is growing pressure on the government to implement initiatives and strategies that help support the aging population. It has been widely reported by industry professionals that there is a shortfall in suitable affordable accommodation for the aging population which is something that needs to be drastically addressed. It has been suggested that the reason for such shortfalls is due to cut backs within the public-sector provision of care homes along with the private sector failing to meet the demand.

With a growing demand for the provision of suitable and affordable care homes, investors and developers could see opportunity within this sector. Cardiff is like many other UK cities that finds a shortfall of provision, unless there is substantial increase in the provision of the care home beds over the forthcoming years, there will be a dramatic shortfall nationwide.

Faithful+Gould continue to provide industry leading advice to our clients in a range of developments and sectors. For more information please get in contact with Sean Hughes or Paul Lavelle.