Student rental sector relies too much on overseas tenants - claim

Research by a student accommodation search platform suggests that the sector may rely too heavily on the apparent year-on-year growth in international students coming to the UK.

StuRents says it’s seen sluggish growth in the Purpose-Built Student Accommodation sector anyway - just a modest 23,000 beds added in 2021 - but it could be in bigger trouble if the number of foreign students reduces. 

The latest statistics from UCAS show that there was an additional five per cent rise in placed Chinese students in the UK this year compared to last, while university places for those students based in the EU collapsed by over half - offset by more domestic students.

However, StuRents says data shows that the number of visas issued to Chinese nationals had dropped by 58.7 per cent in the 12-month period up to September 2020, creating significant challenges for PBSA providers as they scrambled to fill as many beds as possible. 

While the most recent numbers for 2020-21 show a partial recovery with those issued to Chinese students increasing by 177.5 per cent for the nine-month period ending June 2021, they are still down by 2.7 per cent compared to the equivalent period in 2018-19.

Importantly the impact has varied per location and regionally, cities such as Bristol and Nottingham have been buoyant this year due to particularly strong demand growth, while there have been challenges in cities such as Coventry and London due to their particularly high exposure to international students.

StuRents claims that what COVID has shown, through a reduction in demand, is the reliance that PBSA places on international students to maintain healthy occupancy levels. 

“With the cost of PBSA significantly more than the average maintenance loan provided to students in England, in a large percentage of cases PBSA rents must be slashed to make it a financially viable alternative to HMOs.

“With a declining Chinese youth population and the rising quality and quantity of good quality Chinese institutions, if and when growth stagnates, competition between the major English speaking study destinations and operators of PBSA is likely to intensify” says a StuRents statement.

The platform has some good news however - the desire from domestic students to live away from the parental home remains strong, with the majority of house-hunting activity occurring between October and January, as normal. 

This demand growth has been strongest at Russell Group universities and those institutions deemed to be prestigious with 35.0 per cent more yearly acceptances at higher tariff providers in 2021 compared to 2013. 

Richard Ward, head of research at StuRents, comments: “Overall, both the PBSA and HMO sectors have weathered the storm of the past 18 months with the sector outperforming other asset classes such as retail.

“However, while the HMO market has been largely insulated from the pandemic due to its early lettings cycle and strong domestic demand, UK PBSA has faced a number of hurdles due to travel restrictions and the uncertain conditions facing students due to Covid-19. 

“More importantly, the pandemic has exposed the PBSA sector’s reliance on international students, which was felt acutely at the peak of the outbreak. While the appetite for higher tariff institutions remains for now, competition is becoming fiercer, and investors will need to be aware that only the very best locations containing renowned institutions are likely to outperform.

“Crucially, the suitability of an investment should not be based on broad market analysis or institutional reputation alone. The most discerning investors are realising the importance of evaluating the granular, local conditions to ensure an appropriate product fit, rather than relying on national trends.”