Market outlook remains strong
As other UK real estate sectors have faced a more challenging macro-economic environment, PBSA has continued to defy market trends, with £7.8 billion of assets traded during 2022. This figure reflected an increase of 89 per cent on 2021, as real estate investment volumes in the UK as a whole fell by 14.2 per cent. A notable proportion of the sector’s activity was secured through the completion of GIC/Greystar’s £3.3 billion acquisition of Brookfield’s Student Roost portfolio. An additional 54 deals were completed in 2022 including a number of new entrants to the UK PBSA market. Global appetite for the sector has continued to increase with U.S. and Singaporean investors accounting for 47 per cent and 24 per cent of investment in the past three years, respectively (source: Savills UK PBSA Spotlight May 2023).
Although there has been less PBSA transaction activity to date in 2023 as investors take stock of the changing macroeconomic environment, the overall attractiveness of the sector remains strong. A resurgence in activity in the second half of 2023 is anticipated, as the market continues to demonstrate robust year-on-year rental growth for academic year 2023/24, reinforcing the supply/demand imbalance.
According to Higher Education Statistics Agency’s (“HESA”) latest student population data for the 2021/22 academic year, the number of full-time students increased by 4 per cent to over 2.25 million. This data also showed a rise in total postgraduate students by 77,000 to 820,000, the highest total ever recorded in the UK. The growth trajectory is anticipated to continue as the university-aged population in the UK expands, with the number of individuals aged 18 expected to reach 890,000 by 2030, compared to 717,000 in 2020. The supply of new beds, including its forward pipeline, has decreased and is not anticipated to keep pace with the forecast growth in demand.
The UK’s attractiveness as a destination for international students continues to drive growth in student numbers. HESA report that the number of full-time international students studying in the UK has risen from 432,000 in 2017/18 to 636,000 in 2021/22. This growth has been largely driven by a surge in Indian students, rising from 15,000 in 2016/17 to 112,000 in 2021/22. Chinese student numbers had also experienced sustained growth, surpassing 147,000 in total. Strengthening international student application statistics continue to be reported. The University and Colleges Admissions Service’s January 2023 statistical release shows a 4 per cent year-on-year rise in non-EU international applications. This was driven by Indian applicants which grew by 5 per cent and Nigerian applicants which rose 26 per cent to 9,130 and 2,930 respectively. Applications from the U.S. rose 10 per cent and UAE applicants rose 21 per cent to 5,800 and 3,570, respectively. The international market accounts for 24 per cent of total UK student numbers, but closer to half the total tuition fees paid to UK universities. The UK remains within the top four favoured international destinations for students originating from the United States, China and India, attracting almost ten per cent of the total international student market, behind only the United States. The UK continues to perform well on relative affordability, when compared with many other sought after international destinations.
Our marketing and sales strategy has continued to target domestic students as well as international markets where our brand is underweight, for example in the strengthening Indian and Nigerian markets. Demographically, for the forthcoming academic year to date, 49 per cent of rooms have been sold to UK nationals, 32 per cent to Chinese students and 19 per cent to other international students.
Recent UCAS applications data suggests a decline in overall student applications of 2.3 per cent, which includes a fall in applications from Chinese students of 2.2 per cent. This decline in applications can be attributed to the UK domestic market, as the overall number of applications from international students has continued to rise, with strong growth experienced from Indian students. The reduction in Chinese applications is largely due to the reopening of the Australian market, post Pandemic. A period during which the UK was a net beneficiary of Chinese applicants.
A key driver behind the reduction in UK domestic applications was a material reduction in applications for Teaching and Nursing qualifications. Both these professions experienced strong growth during the Pandemic years of 2020 & 2021. Post pandemic normalisation, together with recent negative sentiment has impacted the number of students applying for these qualifications.
Historically, only 15 per cent of Teaching and Nursing applicants apply to study at higher tariff universities. Removing Teaching and Nursing applications from the data reduces the decline in applications to a more modest 0.8 per cent.