Overview of UK Education Sector
It is expected that the number of first-year undergraduate students is going to increase, and applicants could reach 1 million by 2030
The latest student population data from the Higher Education Statistics Agency (HESA) shows that in the 2021/22 academic year, 628,725 full-time, first-year students started their undergraduate degrees. This is the second year in a row with over 600,000 new starters. For the 2021/22 academic year, the number of full-time students rose by 4%, to over 2.26 million. This growth has mostly been driven by a greater number of postgraduate students, which increased by close to 70,000.
Taking a look at data from UCAS for application and acceptance this indicates the level of new starters is expected to continue, with 618,000 starting in 2022/23 and 622,000 in 2023/24. There is continued growth expected in the number of applicants, with UCAS projecting the UK could reach 1 million university applicants in 2030.
The UK also continues to be one of the most popular global destinations for students looking to study abroad. Between 2019/20 and 2021/22, the number of full-time international students rose by 117,500. This is despite a fall in EU students in the wake of Brexit, which has been more than offset by significant growth in the number of students from India, as well as continued strong numbers from China and elsewhere.
Recent figures from HESA, for the 2021/22 academic year, show that the number of full-time students rose by 4%, to over 2.26 million. This growth has mostly been driven by a greater number of postgraduate students, which increased by close to 70,000.
So overall student population figures for the UK continue to grow and hence demand for student accommodation across the UK will also increase significantly. The issue is while demand increases supply from the more traditional HMOs (houses in multiple occupation) is declining. HMOs are a key accommodation option for students who are unable to rent a room in Purpose-Built Student Accommodation (PBSA). Data from the Department for Levelling Up, Housing and Communities has shown the number of students living in HMOs has grown by 18% in the last 10 years to the highest it has ever been, with more than 35% of students relying on HMOs in cities like Manchester, Nottingham, and Edinburgh. Analysis by Octane Capital shows there are now 489,701 HMOs across England, meaning the market has shrunk by over 21,000 properties in the space of two years.
In addition, Universities themselves are increasingly decoupling themselves from accommodation provision which in turn further exacerbates the supply-demand imbalance across the student sector. According to NUS and Unipol published a briefing paper on Scottish-only data from their 2021 survey it accommodation across Scotland has shrunk by nearly a fifth since 2012-13.
The lack of student accommodation is reaching a crisis point and some students have had to defer their studies as a result. This is particularly prevalent in Scottish university cities like Glasgow, Edinburgh, and St. Andrews. In an article in Scottish Housing News in 2021 NUS Scotland warned about a shortage of PRS housing for students, particularly in Glasgow, Edinburgh, and Stirling.
One result of all of this is from an investment point of view, the PBSA sector will continue to appeal due to its increasingly compelling dynamics. Operational assets will likely further increase in popularity due to the strength in rental performance and such strong demand will further reduce stabilisation risk on new schemes.
General Conditions in the UK Rental Market
There is a severe supply-demand imbalance within the Private rented Sector (PRS) which is driving rental inflation across the UK to continue to increase. Latest data from the ONS show Private rental prices paid by tenants in the UK rose by 6.1% (provisional estimate) in the 12 months to October 2023, up from 5.7% in the 12 months to September 2023. This is another record representing the largest annual percentage change since the UK data series began back in January 2016. This data set is especially important as The Private Housing Rental Prices (IPHRP) reflects price changes for all private rental properties, rather than only newly advertised rental properties.
The RICS report that driven by the ongoing mismatch between demand and supply across the lettings market. A headline net balance of +33% of respondents to their survey saw an increase in tenant demand over the period August to October (part of the seasonally adjusted quarterly lettings dataset).
In their most recent Housing Insight Report Propertymark also reports low stock levels amongst their members with an average of 11 properties available for rent. This figure has remained much the same over the last 12 months.
Average Number of Properties to Rent per Member Branch
Focus on the Scottish Rental Market
In the last 20 years, there has been a significant increase in the number of private rented sector (PRS) households in Scotland. Increasing by 132% from circa 155,000 properties back in 1999 to over 360,000 in 2019.
Over the last four years The Private Rental Sector (PRS) in Scotland has experienced a roller coaster ride the result of not just economic impacts but also unique legislative challenges due to The Cost of Living (Tenant Protection) (Scotland) Act 2022. This has resulted in widespread uncertainty and mounting pressure on Landlords. At the same time, the sector is also becoming increasingly difficult for tenants. The current supply of properties within the PRS is unable to keep pace with the demand in the sector. The resulting supply-demand imbalance is contributing to many adverse consequences such as higher rent pressures and increased stress amongst tenants in securing a home.
The ONS reports the Index of Private Rental Prices (IPHRP) in Scotland increased by 6.2% in the 12 months to October 2023. This is up from an increase of 6.0% in the 12 months to September 2023 and is the highest annual percentage change since the Scotland series began in January 2012. As pointed out above the IPHRP reflects price changes for all private rental properties, rather than only newly advertised rental properties.
Focus on the Edinburgh Rental Market
Rents in the city for new tenancies have continued to climb, looking at the most recent Citylets Quarterly Report rents in the capital for newly listed properties have risen by 16.5% year on year and now stand at £1,546 PM.
Average time to let (TTL) figures also remain at low levels of just 14 days a reduction from the 18 days we reported in our last review which underlines the ongoing supply problems for rental properties in the capital.
Student Rental Market in Edinburgh
Edinburgh has a long-standing history of being a student city with five universities and two colleges calling the city their home.
- The University of Edinburgh was founded in 1582: Scotland’s largest and oldest university, with world-leading research capabilities across a huge range of institutes and centres.
- Edinburgh Napier University was founded in 1964: A modern university organised into six schools: Applied Sciences, Arts & Creative Industries, Business School, Computing, Engineering and the Built Environment, and Health & Social Care.
- Heriot-Watt University was founded in 1821: A global university specialising in engineering, science, and business. Its campus in Edinburgh includes the The Heriot Watt Science Park Edinburgh’s largest science park.
- Queen Margert University was founded as the Edinburgh School of Cookery in 1875. In 1998 the college was granted full degree powers which enabled it to award its own research and higher degrees and in 1999 it was empowered to change its name to Queen Margaret University College.
- Napier Universitywas founded in 1964 as a Technical College it was inaugurated as a university in 1992
In the most recent Edinburgh by Numbers Report (source Edinburgh City Council) it was found that there were 69,815 students currently enrolled in Edinburgh Universities. A further 29,342 students were enrolled in Edinburgh College the numbers have risen from 26,440 in 2019.
The number of people studying in the city has grown, in 2019 the number of university students was 64,025 and there were 26,440 enrolled in Edinburgh College. Interestingly the number of non-UK based students enrolled in higher education in the city has risen significantly in 2019 it was 15.6% in 2021 it was 23.35%.
The overall population of Edinburgh is 526,470 which means Edinburgh has one of the highest proportions of Higher Education students per 1,000 population.
As mentioned above there is already a significant shortage of supply within the Private rented Sector (PRS) in Edinburgh with stock levels at historic lows. Focusing on HMOs according to Edinburgh City Council there are around 6400 registered HMOs in the city with a percentage of these being used for short-term rental. As an agency we manage a number of traditional HMO flats in the city, we have seen supply levels fall while demand increases which has added inflationary pressure to rents. This is primarily due to some landlords moving out of the PRS into the short-term let sector and others exiting altogether.
The result is competition for accommodation amongst students has reached feverish levels with many not being able to find a place to live. In recent survey of students who started semester one for the 2023-24 academic year was conducted by Slurp Edinburgh, a student-led organisation that focuses on housing security issues. It was revealed that excluding first years who are covered by the university’s housing guarantee, a sixth of all students (16%) who needed private rented accommodation did not have their name on a tenancy agreement by September 18th. The NUS has described the escalating accommodation crisis as “absolutely huge”
There have been a number of press articles detailing how hard it is for people studying in the city to secure accommodation. In one it was noted that Edinburgh University recently provided bunkbeds in a converted common room inside halls of residence due to a shortage of available flats. Personal testimonies have emphasised that the pressures associated with finding a place to live are now impacting students’ mental health and their ability to keep up with their studies.
Against the background of a fast-rising student population and declining stock levels of traditional HMO properties in the PRS, the Purpose Built Student Accommodation (PBSA) sector has created an additional source of supply. This has relieved some of the pressure within the PRS but the problem remains and will only get worse as the number of people studying in the city continues to rise.
As a niche investment sector, the student HMO market offers investors an opportunity for strong returns. High tenant demand with constrained stock levels results in extremely low void periods and potentially high yields.
Including student HMOs in a real estate portfolio can also offer diversification benefits. The student housing market operates somewhat independently of traditional residential and commercial real estate markets, reducing overall portfolio risk. In addition, Edinburgh’s property market has also shown steady capital appreciation over time.
But it must also be stressed that investing in the student market requires specialist knowledge as there is a far high level of regulatory and legislative control. In addition, the market is very area specific and local knowledge is critical. Any investor interested in entering the sector should look for professional advice.
Glenham manage many HMO properties and as such we are well versed in the specific regulatory, legislative, and administrative requirements so if anyone would like to have a chat about anything to do with the student market please do get in touch. As an asset management company, we understand property as an investment class. We practice prudent wealth management and always advise our clients to build a diversified portfolio of assets in which property plays a crucial role offering strong returns over time with opportunity for capital growth and a regular source of income.