Universities, Private Sector Partnership and the Future
There are just under 681,000 purpose-built student accommodation (PBSA) bed spaces available to students studying in the UK for the 2020/21 academic year. Of these, just under 146,000 (21%) have some form of agreement in place with a university; be this a 125 year on-campus partnership or a simple, short-term nomination agreement. These arrangements therefore play an important role in the life of students at universities across the country. Good relationships between institutions (and ultimately, students) and their partners are vital in meeting rising expectations and delivering positive learning outcomes.
The COVID-19 pandemic has brought these relationships into stark focus, with universities placing huge trust in their partners to support students through a time of uncertainty, upheaval and change. Universities and students are now assessing which partners have delivered over this period, with even the strongest partnerships being tested in terms of communication, as well as in financial terms. Flexibility and the ability to adapt to change are now more important than ever.
Current market and emerging policy conditions explored later in this blog indicate that strong relationships and engagement will become even more important in the future. It is therefore vital that the private sector properly understands the motivations and expectations of universities and students if such relationships are going to be successful and support the overall health of the higher education sector. Conversely, it is important that universities are aware of the range of solutions a private sector partner can deliver, as well as the challenges.
The PBSA Supply Revolution
The majority of universities are aware of the need to balance accommodation demand with supply (over both the short and long-term) and with the student experience now a crucial tool of recruitment, relationships with private sector partners can help to both increase and diversify accommodation portfolios – increasing an institution’s attractiveness to potential students.
For a private sector partner, a good relationship can deliver security of income and in an increasing number of markets, can shield developments from intense market competition. The UK’s key operators are aware of this, with their share of beds under a university agreement almost double the national average.
The past decade has seen a revolution in the private sector’s involvement in the PBSA market. In 2013/14, 54% of all beds in the market were owned and operated solely by universities; by 2020/21 this figure has fallen to just 41%, with private providers driving innovation through quality improvements and the social and amenity spaces that are vital to the modern student experience. The private sector now controls well over half of the market, although it is important to remember that a private sector’s developer/operator’s business model relies on the success of UK institutions. Therefore, effective relationships and truly understanding the motivations of an institution are vital to success.
What do Universities want?
There are over 140 universities in the UK and whilst each one’s motivation in relation to accommodation will be in supporting students and delivering the best outcomes, it is vital that potential partners understand what sits behind this. Some universities will value the certainty of a long-term agreement, whilst others will value flexibility. Wider university strategy will also impact a willingness and ability to enter into agreements, as will attitude to risk, balance sheet strength and investment priorities.
Whilst 58% of beds nationwide are en-suite clusters, this figure rises to 80% for those under a university agreement. It is clear that in the majority of cases universities are looking to bolster supply with stock that encourages interaction and supports the student experience. In terms of pricing, the actual differentiation between average rents and those secured through agreements is minimal, indicating the wide array of price points required by universities to meet their individual requirements.
Engagement and Relationships in the Future
As outlined above, relationships between universities and the private sector in meeting growing student expectations are important, with the wider market environment indicating these will only become more vital in the future.
· University Finances, Stock Delivery and Affordability – with the private sector now providing the majority of stock across the UK, a number of universities have questioned whether accommodation is a core competency, especially in an era of intensive market competition and the financial impact of COVID-19. Allied with historic low borrowing rates, there are opportunities for the right private sector partners to bring the solutions universities need to support the student experience, whilst delivering more affordable rents at a time when pricing sensitivity is ever more important;
· The London Plan – the requirements of the Plan for a majority of beds to be secured in an agreement with a higher education provider effectively “enforces” the relationship between the private sector and universities into policy in the UK’s largest PBSA market. It remains to be seen whether other authorities across the country will aim to replicate the Plan’s Policy H15 or whether this will impact development. In any case, it presents an opportunity to meet student expectations in terms of design and affordability;
· Proposed A-Level Changes – the proposed changes for students to only be offered places at university following receipt of A-Level results from 2023/24 has the potential to dramatically impact marketing periods for PBSA and university certainty around bed space supply. Such a change would mean far greater levels of engagement between universities and their partners would be needed – potentially increasing the number of short-term agreements in place in the sector
· Obsolete Stock – there are just over 207,000 first-generation PBSA schemes in the UK, with over 80% of these owned by universities. With a number of these beds requiring improvement to meet the expectations of today’s student body, there is role for the private sector to play in improving “core” institutional stock, whilst delivering the off-balance sheet requirements universities need and expect, alongside maintaining affordable rents.
Overall, it is clear that market trends and the macro-economic and policy environment are pushing private providers and universities into an era of increased partnership, and Cushman & Wakefield is working with a growing number of partners that want to effectively engage with universities (and vice versa). There is clear evidence across the sector that relationships formed through true partnership and effective communication have benefited the student body through the delivery of quality stock at affordable prices. Ultimately, this supports the student experience and good graduate outcomes.