The UK has voted; the 52:48 majority decided it was best for the UK to leave the European Union, but what will this mean for the Student accommodation market?
During previous market volatility, the yields in student housing have proved much more resilient than those found in residential and commercial markets, due in part to less uncertainty around occupier decisions. The key questions now facing the market are how Brexit could affect student accommodation and how resilient will it be to such a change?
Student Visas and Recruitment
Currently students from the EU, together with Swiss nationals, do not need permission to live, work or study in the UK. Post Brexit, should the UK remove the free movement of people from the EU, these students would be required to seek permission similar to that of Non-EU students.
However, according to CBRE, EU students only make up 6% of all the full time students in the UK. Mainly due to higher tuition fees and accommodation expenses, when compared to other EU countries. Any move to require visas for these students, would further impact on EU student demand to study in the UK, but there is a positive, our university system is still heavily oversubscribed. UCAS release figures for 2015, noting that for every EU student accepted, there were 7.3 applicants, for every non-EU student, the number of applicants increases to 7.9.
Although leaving the EU will probably result in a reduction in the number of applications from the European Union, the student market’s dependence on them is low.
Furthermore, any decreases in funding previously allocated to areas such as research or new facilities, which are in turn reallocated to the increasing costs of recruiting overseas students, will serve to make universities more competitive. In previous years, this has meant the diversion of funding from University owned accommodation, creating an undersupply that has been capitalised upon by the private sector.
Top rated institutions certainly have more exposure to migration issues but they are also best equipped to maximise student intake from other demographics.
The cost of attending a UK university is not the only consideration for EU and Non-EU students. Currency devaluation as a result of Brexit is only likely to present the UK as a better value alternative when compared to the rest of the world. With world leading higher education institutions combined with the UK’s educational reputation, the UK student market should be resilient to the change in EU status.
Student accommodation yields have historically proven to be resilient because they are diversified and not dependent on one income stream of demand. The UK government has already allowed universities to remove the cap on the number of UK undergraduates they can recruit, resulting in an increase in demand.
According to CBRE, recent student portfolio deals tend to indicate that International Investors are still attracted to the stable income of student accommodation. They point to two recent transactions; Mapletree’s purchase of the Mansion Portfolio for £417million and Brookfield’s purchase of the Rose portfolio for £432million. By comparison, purchases from investors in the EU into the UK student accommodation market amounted to a value of just £24million in 2015.
To further enforce the robust nature of the student accommodation market, at time of writing on Monday 27th June at 10.30am, the two leading share prices in the Student Accommodation Market, Unite Group PLC and Empiric Student Property PLC, were both showing minimal losses compared to Residential House Builders to their share prices. Unite’s shares were trading at £583, down 3.8% and Empiric’s shares, were trading at £104.5, down 3.91%. This compares with house builders Barratt Developments PLC, whose shares were trading at £390.20, down 11.28% and Persimmon PLC, whose shares were trading at £1,365, down 10.20%.
Whilst there is a degree of uncertainty about the direction of financial markets following the UK’s decision to leave the EU, we can be certain that the supply and demand challenges seen in the UK property market will not be solved in the foreseeable future.
With uncertainty comes opportunity, some would speculate that decreased stock values at the major residential house builders could further frustrate demand by limiting ongoing supply.
These facts and speculations, combined with a devalued Sterling create a property market ripe with opportunity in supply. The opportunity to purchase in a structurally undersupplied market, at a time where exchanges rates are at the most attractive as they have been in years, should lead to a positive outlook for the Student Accommodation market.