Editor: Your recent piece exploring the pitfalls for investors as student accommodation booms makes clear that the evolving asset class has emerged as a mainstream investment. However, it misses one of the most significant issues facing the sector: an overweighting in new luxury supply against a shortage of more affordable accommodation.
The student market has shown an unprecedented level of growth this year, particularly so for PBSA, which saw its global investment reach a record $16.3bn (£12.5bn) in 2018. This is hardly surprising when demand for such accommodation remains so significant.
Student demands on this sector are also evolving and this has resulted in a greater focus on the student experience, with increased development of high-spec and luxury accommodation. Indeed, the growing numbers of international students who are already paying higher tuition fees to attend UK universities are more willing to pay for flashier accommodation. This in turn pays off for investors initially.
However, the focus on luxury overlooks the requirements and constraints of the vast majority of students. Less than 1% of the 32,000 student properties built this year met the National Union of Students criteria for what is affordable.
This isn’t just a problem for students; it’s a problem for investors. Overdoing luxury ultimately risks lower margins, as reaching full occupancy becomes a challenge. Investors need to be cautious that they’re not prioritising style over substance.
Of course, there will always be a premium segment within the student space – data from UCAS shows that applications from international students for 2019-20 rose 6% year on year – a result that suggests the focus on premium living is set to continue. However, demand for affordable student accommodation is the most pressing issue for the sector – one investors must recognise to achieve the returns they seek in the longer term.
John Harcourt, managing director, Kajima Properties