Landlords hope Covid won't scare students off university 

Pandemic has interrupted reliable rental streams from higher education students for the likes of Brookfield, iQ and Unite

Film student Julia Pentz retreated back to her family home in Shropshire when coronavirus hit, and is preparing to return next term with trepidation.

"It's going to be difficult – especially with eight of us sharing one small house," says the student from the University for the Creative Arts, Farnham. "If there is a second wave then we will all have to isolate together."

Though the 21-year-old might not realise it, her living situation puts her squarely in the sights of the £50bn purpose-built student accommodation (PBSA) industry, led by giants such as Unite Group and iQ Student Accommodation.

They are trying to coax more students out of shared houses and into more managed student accommodation blocks, as they try to cope with a looming potential collapse in demand due to coronavirus. 

International students are putting off or cancelling courses as they are unwilling or unable to travel, while social distancing on campuses and lectures delivered via video threatens to destroy the allure of university life for domestic and global students alike.

The higher education sector faces "immense financial consequences" from the pandemic, warns the consultancy London Economics. It believes that close to one in two international students could be planning to cancel or defer plans to go to university next year, while 14pc of British students are considering deferring. 

That would hit PBSA providers hard, after years of soaring growth. Its reliable tenants and annual rental reviews have convinced investors to pour money into the sector in recent years, with the number of beds jumping from 500,000 in 2013 to above 650,000 in 2019.

Beds rake in an average £6,777 each per year for private-sector owners, with rents for en-suite rooms rising 16pc above inflation since 2014. Three players – Brookfield, iQ and Unite – dominate the private market. The sector threw up the largest deal in UK private real estate history last year, when Blackstone bought iQ from Goldman Sachs for £4.7bn. Unite also splashed out £1.4bn on rival Liberty Living. 

Those deals look different in the shadow of coronavirus. PBSA landlords are estimated to have waived £168m of rent for students who have had to go home due to coronavirus and are under pressure to go further. Unite Group, the largest student landlord with about 74,000 tenants, expects to forego rent on up to 46,000 beds, bracing for a £125m cash hit.   

Having axed the company's executive-level pay and delayed some of its developments, Unite chief executive Richard Smith is  preparing to welcome students back next term with signs ordering them to keep their distance from each other, hand sanitisers, and possibly even temperature checks. 

That’s if they come at all, of course. The London Economics’ 47pc projection is based on a British Council survey of Chinese nationals of whom 98pc had applied to study in the UK.

Both Unite and its rival iQ have seen slowing demand from international students, although both are reporting more encouraging signs from domestic students. As of April 22, Unite's reservations for 2020/2021 were roughly in line with last year at around 80pc.

Smith is optimistic. "I think a good proportion of international students will want still to go to UK institutions," he says. "And for domestic students, a great deal of the traditional experience will still happen."

James Hanmer, head of UK student accommodation at Savills, agrees that demand from domestic students is likely to hold up – not least because of the limited other options available.  

"Do you want to go and sit on a beach in Thailand, when you are worried potentially about mum and dad back home? And the jobs market is going to be challenging. I think most school leavers will say the best option is just to get on with things."

Although next year is certain to be bumpy, the longer-term future for PBSA landlords looks more encouraging – barring a second major wave of coronavirus. 

The number of 18-year-olds in the UK is growing, which could help drive a 220,000 increase in domestic students by 2030. Immigration rules are favourable, and more people tend to going to university during recessions, as job numbers shrink. 

"On the assumption that perhaps we have a vaccine by 2021 or we have got used to living with the implications of this virus, then I see a very strong demand position looking through to 2021/22," says Smith. "I think the UK remains globally one of the most attractive destinations."

Higher-ranked universities are expected to pull even further ahead, putting accommodation providers in those cities in an even better position. 

Investors and lenders are still keen. "We like the sector a lot," says Mark Bladon, head of corporate real estate lending for Investec, which has stumped up £700m of development finance for PBSA schemes since 2015 – funding nearly 20,000 beds. 

"There is a very diverse tenant base and huge institutional appetite for the completed stock. I don't think coronavirus has changed all that." The main players, he adds, are large enough to weather a short-term income hit.

Meanwhile, corporate sales in the market are still going ahead, although the pace has slowed down and sellers are frequently having to guarantee the first year's rental income. 

Student accommodation also remains a safer haven for investors' cash than retail assets, with money expected to flow even faster towards the former. "The 'beds in sheds’ property mantra will continue," says Hanmer. "People do like the annual rental growth."

Rental growth, however, might have to be reined in. The National Union of Students is calling for rent cuts or waivers, noting the growing strains on student income. 

Bar and restaurant jobs which typically boosted students' incomes have collapsed, while parents' incomes have also been hit. The NUS also wants landlords to release students from contracts they have already been locked into for next year. 

Smith pushes back on the idea that he might have to increase rents to cover Unite's costs of dealing with the pandemic. "I don't think so," he says. "We are very focused on the offer that we have; we believe its value for money."

Students, meanwhile, still speak of university as a place of opportunity. 

"Its been great," says Ms Pentz. "We study a whole range of things within the course, which is good as I don't know what I want to do with my life, so it's good to narrow it down. I have become a completely different person."

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