Newcastle has seen a recent surge in PBSA. But is it enough to house its incoming student population, and are these units coming at the cost of residential developments?
Newcastle is a microcosm of the UK when it comes to the debate over purpose-built student accommodation.
On the one hand, specialist developers say there is scope for substantial PBSA growth – and Knight Frank calculates supply is equivalent to only 38% of the city’s 42,565 students.
On the other hand, critics say the surge in Newcastle PBSAs – with another 2,697 units in the pipeline – has taken sites and investment to the detriment of mainstream residential building.
Next, add in general uncertainty over student numbers following Brexit (23% of full-time students in the UK are from overseas and admission service UCAS saw a 7% drop in EU applicants for 2017/18). And then, for good measure, some doubt of the benefit of students anyway (a recent Financial Times article interviewed a Newcastle retailer critical of how much students spent locally).
Yet uncertainty and local gripes appear not to be deterring the sector’s major players.
Student specialist Unite – which owns and operates the 527-bed Manor Bank and 112-bed Magnet Court in the city, and also has a 569-bed scheme under way in a mixed development in Newcastle’s historic Grainger Town – says there’s plenty of space for more. “The local market is far from saturation point,” insists group property director Richard Simpson.
He says the universities’ commitment to house first years in PBSA and council policies obliging developers to prove projects do not lead to excessive student impact on otherwise residential areas. This backs up his belief that there is scope – and need – for more.
Another specialist builder, Crosslane – delivering its fourth Newcastle PBSA scheme in four years with its 135-bed Albert Street project – recently sold its 147-bed student accommodation development, St James’ House, to an institutional investor for a total purchase price of £16.5m, reflecting a net initial yield of 6%. Crosslane also advised the Victus European Student Accommodation Fund on the sale of St James’ Point Phases One and Two, developed by Crosslane, to the same investor for a total purchase price of £35m, reflecting a net initial yield of 6%.
Each of the 566 bed spaces sold for an average of £90,989 and far from indicating the city was no longer profitable for PBSA, Crosslane says the deal and its 6% yield shows how attractive the sector is to investors.
“With 43,000 full-time students and around 14,000 PBSA beds in Newcastle, there will continue to be a need for more well-located quality accommodation for the foreseeable future,” says James Metcalf, co-founder of the Crosslane Group.
Even Brexit isn’t stifling enthusiasm for the sector, whether in Newcastle or elsewhere.
“EU students make up 3.7% of the higher education population in Newcastle, whereas non-EU international students make up 18.9%. As such, potential Brexit fallout will likely not have a material effect,” says head of student property at Knight Frank, James Pullan.
They are buoyed by OECD estimates that the number of international students wishing to study away from home is rising 6% a year; their faith is that the UK’s reputation for high education standards – currently attracting £17.5bn in fees and inward investment each year – will remain in place once the Brexit dust has settled.
While PBSA had previously been a choice of overseas students, Britons are now keen too, says Howard Meaney, UBS Asset Management’s head of real estate. “It may be a consequence of tuition fees or a generational reason in that more and more seem unwilling to accept the generally inferior house in multiple occupation stock,” he says.
Such optimism does not mean student accommodation is universally welcomed.
JLL says in Exeter, for example, mainstream house prices will rise by above the national average over the next five years because of a supply shortage. “Residential development in the city centre has been relatively sparse in recent years with many sites developed for student accommodation instead,” says James Petherick, residential development director.
Many local authority councillors have been on the receiving end of much sharper criticism of student accommodation – not just HMOs but PBSA blocks which in some cases bring hundreds of students into areas previously dominated by owner-occupiers. Specialist student providers are undeterred, however.
They say PBSA has allowed redundant premises to be regenerated (Crosslane’s St James House in Newcastle was converted from a 1980s office block, for example) and they insist their premises accommodate students who would otherwise be renting in houses that can now be freed up for family buyers or mainstream renters.
That latter argument is difficult for critics of PBSA to counter, especially when the housing white paper and just about all politicians are united in the need for housing supply to increase. New purpose-built student blocks look like they are here to stay – and if you live in a city, there is probably one coming to an area near you in the imminent future.
Purpose-built student accommodation
Last year Knight Frank compiled a league table based on the percentage of full-time students who have no access to PBSA, based on predicted September 2016 completions:
- Glasgow: 78%
- London: 70%
- Bristol: 66%
- Birmingham: 65%
- Manchester: 64%
- Southampton: 64%
- Cardiff: 63%
- Aberdeen: 62%
- Newcastle upon Tyne: 62%
- Exeter: 60%
- Leeds: 60%
- Sheffield: 60%
- Edinburgh: 59%
- Nottingham: 59%
- Durham: 58%
- Leicester: 53%
- Liverpool: 49%
- Coventry: 47%
What have students ever done for Newcastle?
- From 2001/2 to 2015/16 student numbers at University of Newcastle and Northumbria University increased 68% from 25,271 to 42,565
- In 2014/15 UoN students spent £240m off-campus, of which overseas students spend £115m annually
- UoN supply chain supports 1,800 jobs, mostly in the north east
- UoN is region’s fourth largest employer (6% of all jobs in city)
