The university challenge to provide top class accommodation

 —  Article by Neasa MacErlean
student living
Image credit: Shutterstock

Ask someone who went to university 20 years ago what their student accommodation was like and they’ll often recount tales of rickety mismatched furniture, kitchens in need of DIY and moldy bathrooms.

For today’s students, however, their new homes are becoming increasingly upmarket with modern purpose-built accommodation in leading markets such as the UK on a par with four star hotels. And other countries are now realizing the opportunities and benefits of providing quality student housing.

Providing higher education to international students on a mass market basis is one of the globe’s newer business sectors. It is expected to double in size to encompass 8 million students in the next decade, according to OECD data included in JLL’s 2015 London Student Housing Insights report. Building residences for that number of people – roughly equivalent to the population of New York – is going to be crucial to attracting these young high-flyers.

“Well-educated and well-funded Asian students have access to universities in the UK, US and Australia,” says Conal Newland, National Director of JLL’s Student Accommodation Services in Australia. “A key issue in attracting them is the provision of more good quality accommodation in ap-propriate locations.” Newland estimates that the leading Australian cities in this sector – Melbourne, Brisbane and Sydney – are “five to ten years” behind London in building the kind of upmarket but affordable residences that this elite group expects.

Both the UK and Australia are now seeing international investors play a major role in the develop-ment of purpose-built student accommodation (PBSA). An increasingly global group of investors – including US-based Greystar and Goldman Sachs and others from Canada and Russia – has trebled capital flows into the UK’s PBSA sector over the last year – with total funding expected to hit £5.7 billion in 2015. More than that, about 75 percent of London’s PBSA stock has changed hands since 2012, reflecting “strong investor appetite in this asset class”, according to London Student Housing Insights.

Rising rental yields

Why are insurance companies and other investors becoming keener to invest? JLL’s Richard Taylerson, UK Director of Student Housing, Alternatives, says: “The mainline property sectors can be quite cyclical. But student housing is one of the few where rentals have gone up year-on-year for a decade.” London rentals are rising at about 5 per cent a year while those outside are nearer 3 percent. Taylerson expects these patterns to continue for another two to three years at least – supported by a lack of supply, growing demand and 97 percent occupancy rates.

London, Oxford and Cambridge are well-known to international investors, many of whom studied there themselves. The PBSA market is now flourishing in other cities which demonstrate depth of demand by sustaining at least two large universities or colleges. The Scottish cities of Edinburgh and Glasgow join Manchester and Sheffield at the top of these lists.

Other European countries are already appealing to the new mobile generations of students – with German and Dutch universities among those now teaching some courses in English. Spain and Finland look promising for investors, according to Taylerson – but conditions on the ground (such as German rent controls) can reduce the attractions of certain jurisdictions. “Each country is quite different and has its own local laws,” he says.

Compact design

Today’s students tend to have higher aspirations on living standards than their parents did, reflected in the en-suite studios and apartments, with stunning views, concierge services and other amenities now being offered to those who can afford them in London. Competing demands from the commercial and residential sectors are complicating factors in cities including Sydney and London. But designers are finding ways to combine elegance and privacy in small spaces – as a 48-room complex in Hong Kong showed this summer when “local and international students immediately snapped up every bed”, according to Wallpaper.

Cities that find ways to negotiate a host of local challenges in order to provide stylish and affordable PBSA will clearly give themselves a head start in recruiting the best students. Affordability is a particular issue in Australia, as shown in JLL’s 2015 Australian student market update. While the country is the fifth most popular destination for international students, coming behind the US, UK, Germany and France (in that order), it achieves its lowest satisfaction ratings among international students for areas including accommodation and living costs.

The UK has its own problems – intense competition for space in city centers, for instance, and in-creasingly faces planning issues. In a city such as London, where the attraction of international students is on the mayor’s agenda, some of these challenges are being overcome – by, for instance, locating the new residences outside the center but providing good transport. The mayor’s office predicts a 50 percent growth in student numbers to 450,000 by 2025.

With international investors seeking to understand the demands and tastes of new generations of international students, the picture could be seen as complicated. But some things are clear – moldy bathrooms have given way to chic design.

Download Report
Read more of this article