1

Headline rental growth for purpose-built student accommodation (PBSA) increased by 2.26% for the 2018/19 academic year, down from 2.55% in 2017/18. This slight moderation is in line with our expectation that rental growth will slow as the sector matures.

While the macro picture shows steady rental growth, individual markets are seeing varying levels of performance, largely dependent on the balance between supply and demand.

Generally speaking, cities with large, growing student populations and modest delivery pipelines, such as Manchester, are outperforming the wider market. Cities with a high level of existing PBSA stock and stronger development pipelines, such as Plymouth, are reporting more modest growth.

While markets have experienced different degrees of new supply relative to demand over the last year, it is worth noting that the change in rental values across the sector has been positive in 95% of the cities covered by the index, and that occupancy rates remain high.

In a handful of markets, such as Cardiff, where a significant volume of new beds have increased supply in the last year, rental growth has been flat or negative for some room types. The opposite is true for markets where delivery has been scarce, such as studios in Brighton.

Location and individual supply and demand dynamics may be the primary drivers of performance, but the data also highlights the importance of an operator’s brand. Schemes owned by occupiers with operational stock of over 10,000 beds in multiple markets reported rental growth in excess of 3% on average.

These owner/operators have developed distinctive, recognisable brands built upon location, high quality stock and a sophisticated approach to customer service and care.

The trend for stronger rental growth for en-suite and non en-suite rooms with shared kitchen facilities compared with self-contained studios continued in 2018/19. This reflects the higher level of demand for more affordable bed spaces. Indeed, the top 10% of en-suite bed spaces by price (excluding London) saw little or no rental growth (less than 1%), whilst bed spaces with the lowest 10% of rents have increased at an average of 3.7%.

Whilst we are beginning to see a movement away from the development of studios, it is still the case that most recent new development has been at the premium end of the market. The lack of new affordable direct let accommodation relative to demand is underpinning the outperformance of lower quartile priced stock compared with the rest of the market.

UK STUDENT HOUSING: RENTAL UPDATE 2018/19

ESTABLISHED BRANDS EMERGE AS RENTS RISERental growth in the UK purpose-built student accommodation sector was positive in 2018/19, despite significant development activity. However, a gap has opened up between owner/operators with the strongest brands and the rest of the market.

FIGURE 1 UK purpose-built student accommodation rental growth 2018/19 change, by bedroom type

FIGURE 2 Average rents by room type Weekly rental costs and % split of room type

“In a transparent market, stronger brands resonate more with students, who as consumers, demonstrate a clear preference for a quality product and will make recommendations based on their experience.”

JAMES PULLAN Global Head of Student Property

Source: Knight Frank Research Source: Knight Frank Research

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

No

n en

-sui

te

En-

suit

e

Stu

dio

Who

le m

arke

t

£199

58%

£294 £175 £151

19% 23%

£126

58%

£107

33% 9%

London

Non en-suite En-suite Studio Non en-suite En-suite Studio

Regional markets

32

UK STUDENT HOUSING: RENTAL UPDATE 2018/19

HIGH PIPELINE MARKETS

What: Markets with high levels of new bed spaces under construction relative to existing stock levels. These markets typically have a broad appeal to a wide range of students. However, sustained increases in student numbers will be important to achieve future rental growth.

Where: Coventry, Portsmouth, Swansea

MATURE MARKETS

What: Strategic cities containing dual or multiple well-regarded universities, and large numbers of students. These markets have a historically high availability of development land, and have seen large amounts of PBSA development in recent years. It is important that new development is targeted at the greatest pool of occupier demand.

Where: Liverpool, Newcastle, Leeds

SUPPLY-CONSTRAINED MARKETS

What: Markets where high competing land values and policy restrictions result in barriers to development. These markets have low pipelines of new stock, in spite of strong demand profiles.

Where: London, Brighton, Bath, Manchester

TRANSITION MARKETS

What: Cities that have experienced a boom in development but have not experienced matching growth in student demand, especially at the premium end of the market. Affordable products continue to be the primary driver of rental growth in 2018/19.

Where: Cardiff, Plymouth, Aberdeen

4.04%

1.64%

3.09%-0.91%

0.85%

2.23%

4.70% 1.37%

3.12% 3.90%

1.26%

-0.47%

Non en-suite Non en-suite

Non en-suite

Non en-suite

En-suite En-suite

En-suite

En-suite

Studio Studio

Studio

Studio

2018/19 HEADLINE RENTAL GROWTH

Aberdeen

3.19%

2.43%

2.48%

2.28%

1.47%

2.51%

2.88%

3.24%

3.65%

1.24%

3.74%

1.29%

3.22%

2.20%

2.28%

3.81%

0.78%

2.67%

1.12%

2.05%

2.94%

1.15%

Bristol

Birmingham

Manchester

Southampton

BrightonLondon

CoventryLeicester

Nottingham

Loughborough

Edinburgh

Newcastle

Durham

Leeds

Sheffield

Bath

Cardiff

Liverpool

Glasgow

Swansea

Exeter

Plymouth

SwanseaLeeds

BathCardiff

-0.28%

Selected city markets. Please contact us for the full list

4

UK STUDENT HOUSING: RENTAL UPDATE 2018/19

STUDENT PROPERTY UK James Pullan Head of Student Property 020 7861 5422 Neil Armstrong Head of Student Property Valuations 020 7861 5332 Jonathan Goode Partner, Student Property Valuations 020 3897 0034 Merelina Monk Partner, Student Property Agency 020 7861 5425 Rachel Pengilley Partner, Student Property Agency 020 7861 5418

GLOBAL CONTACTS

James Pullan Europe +44 020 7861 5422 Emily Fell Asia Pacific +65 6429 3591 Ben Schubert Australia +612 9036 6870 Joseph Morris Middle East +971 4426 7601 Ryan Lang America +512 637 1296

RESEARCH & CONSULTING

Matthew Bowen Europe +44 0117 945 2641 Paul Savitz Asia Pacific +612 9036 6811

Important Notice © Knight Frank LLP 2018 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

İQ STUDENT ACCOMMODATION

RECENT MARKET-LEADING RESEARCH PUBLICATIONS

Knight Frank’s latest research reinforces what we have long believed at iQ – that whilst location and market-specific supply and demand dynamics are important, a key differentiator for PBSA is the emphasis placed on the lifestyle the provider is offering, and therefore the overall brand experience.

Student expectations have shifted significantly over the last decade and what today’s domestic and international undergraduates and post-graduates want is not just value for money and excellent customer service, which are taken as a given, but also to live somewhere they can “belong” and where they can engage with positive experiences in a home from home.

It is not enough just to be a provider of thoughtfully designed and stylish spaces, wellbeing and the student experience also need to be considered and accounted for. This includes developing and remodelling schemes to include community areas to study, socialise and workout in, and by ensuring a programme of events.

As the sector continues to mature and grow, the operators who will thrive across all the market segments described in this report, will be not just those who place real estate fundamentals at their core – micro location, design, rate, massing etc – but those who understand the importance of brand and the underlying student experience. iQ has achieved high levels of occupancy and above average rental growth, which looks set to continue for some time, by sticking close to those principles.

Despite political uncertainty, the UK’s world class higher education system is well placed to continue to grow, backed by strong international demand, increasing UK participation and the domestic demographic uptick due to commence in 2020/21. The PBSA sector will both assist and benefit from this growth, but the out-performers will be those with a long-term vison grounded in both value for money and brand values which put student experience at their core.

DAVID TYMMS Commercial Director iQ Student Accommodation

UK STUDENT HOUSING UPDATE

Student property investment totalled £4bn in 2017, up 25% on the previous year. This strong performance looks set to continue in 2018, despite the current uncertainty surrounding Brexit. The enduring strength and quality of the UK’s Higher Education sector remains the key driver.

January deadline data from UCAS reinforces this view. Despite a slight drop in total applicant numbers, down 0.9% compared with 2017/18, which reflects the smaller cohort of those turning 18 over the last year, a record 36% of A-level students across the UK applied for higher education courses in 2018.

Applications from international students also increased, bucking the downward trend seen in 2017 when uncertainty surrounding the UK’s future relationship

with Europe contributed to a decline in applications from within the EU, although the numbers coming to UK universities remained high due to above-average acceptance rates.

In the 2018/19 cycle, applications from within the EU were 3.4% higher year-on-year, with an 11.1% increase in applications from non-EU applicants. Overall, applications from outside of the UK increased by 7.6%, highlighting the enduring popularity of the UK as a place to study and live.

The number of students accepting places at UK institutions has increased over the long-term. In 2017/18, over 200,000 18-year olds and 70,000 students from outside the UK accepted places, the highest on record.

SEARCH FOR QUALITY UNDERPINS APPLICATION NUMBERSDemand for UK Higher Education remains strong despite uncertainty over EU funding and the inclusion of international students in government migration targets.

Key factsTotal applicant numbers for UK higher education courses for the 2018/19 cycle fell by 0.9% year-on-year, according to UCAS data

However, a record 36% of A-level students across the UK applied for courses in 2018

Applications from within the EU were 3.4% higher year-on-year, with an 11.1% increase in applications from non-EU applicants

The number of 18-year olds in the UK is projected to increase by 103,000 between 2021 and 2025, underpinning future demand

PBSA represents around 30% of full-time first-year undergraduate housing choices, up from 22% five years ago

JAMES PULLAN Head of Student Property

“ Demand for Higher Education in the UK remains strong. Universities that are perceived to offer the highest quality courses in locations offering the best overall student experience will increasingly attract higher levels of students.”

Source: Knight Frank Research / UCAS

FIGURE 1

University applicants by domicile Indexed 100 = 2009/10, full year (data for 2018 at January deadline)

FIGURE 2

Applications by university tariff band Indexed 100 = 2009/10, full year (data for 2018 at January deadline)

Source: Knight Frank Research / UCAS

80

100

120

140

160

180

200

220

2018

/19

2017

/18

2016

/17

2015

/16

2014

/15

2013

/14

2012

/13

2011

/12

2010

/11

2009

/10

UK EU (excluding UK)

Non-EU Total

80

90

100

110

120

130

2018

/19

2017

/18

2016

/17

2015

/16

2014

/15

2013

/14

2012

/13

Lower tariff Medium tariff

Higher tariff All

ACTIVE CAPITALTHE REPORT 2018

RESEARCH & CONSULTING

SECTOR REVIEW PBSA LOCATION TRENDS MARKET OUTLOOK

The Wealth Report Active Capital UK Student Housing Update

Australia Student Housing Report