Brexit and

student
housing
A degree of uncertainty

May 2017

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 Brexit and student housing 3

Brexit and student housing

A degree of uncertainty

Overseas student applications to UK institutions plummeted after the

Brexit vote. With fee hikes also looming, real estate investment in
student accommodation faces some big questions.
Our analysis shows why sites in Coventry, Canterbury, Southampton,
Bath, Exeter and Manchester may be vulnerable to the Brexit effect,
however there is positive news for real estate businesses that can
position themselves correctly.
Student accommodation has come a long way from its old This growth has been driven by burgeoning demand.
image of pokey rooms and damp flats. Today, students expect Two decades ago, the UK student population was 1.5
creature comforts like gyms and on-site cinemas, and the real million – today, it’s 2.27 million. Student accommodation
estate sector has been feeling a lot more comfortable about is an increasingly organised sector, extremely attractive to
the student accommodation sector too. institutional investors.
According to Jones Lang LaSalle, 2016 is likely to have seen
The European dimension
a 1.5% increase in rental growth in the regional UK student
accommodation market – and up to 4% in London. As a One driver of that growth has been an increase in EU students.
result, UK deals, worth just £2 billion in 2014, rose to £5.7 For 2015/16, they represented 5.5% of total student numbers,
billion in 2015. up from 4.4% in 2004/05. And there was every expectation
that these numbers would continue to rise. There are currently
Estate agency Knight Frank calculates that the combined
no limits on the number of EU students in the UK and no visa
asset value of the UK’s PBSA (purpose-built student
requirements.
accommodation) sector, both private and university owned,
is now £43 billion. There are 525,000 PBSA bedrooms, with However, UCAS figures showed that the number of EU
planning consent for another 90,000. students early applying for October 15 course deadlines
dropped by 9% – due to Brexit. For the January 2017 deadline,
EU applications were down 7.4% - and perhaps more
worryingly, 5% for UK applicants.
Figure 1 Factors in supply of, and demand for, student real estate in the UK

1 Pressure on home student recruitment

2 The rise of the consumer student

3 Slowing overseas growth

4 Threat of new entrants, substitutes and disruptors

5 Post Brexit changes to fees and entry requirements for EU students

6 Increased interest in PBSA as a mainstream asset class

© 2017 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity.
 4
Brexit and student housing

There are fears that a reclassification of EU nationals as A further increase in tuition fees for EU students to
‘international students’ (who made up 13.8% of total £14,500 – roughly the annual fee at top institutions for an
student numbers in 2014/15) would see their tuition fees rise ‘international student’ – could well result in student numbers
sharply. Higher fees are also being blamed for the drop in shrinking by a further 4.6% to 7.6%, we estimate.
English applicants.
And the competition may also become more appealing:
Worse, they may fall victim to tougher new net migration most European countries provide free access to higher
targets, effectively capping overseas student numbers. education for EU nationals. Nicola Dandridge, Chief
Home Secretary Amber Rudd told the Conservative Executive of Universities UK, told the Commons Education
Party conference in October that there had to be tougher Select Committee in January: “Our competitor countries,
regulations for foreign students. particularly in the EU, see this as a huge advantage for
them. They are redoubling their marketing efforts and see
“The current system treats every student and university
Brexit as posing a good opportunity for them to recruit
as equal,” she said. “We need to look at whether this one
internationally-mobile EU students.”
size fits all approach is right for the hundreds of different
universities, providing thousands of different courses across Will there be a flow of UK students returning from the EU
the country. This isn’t about pulling up the drawbridge. It’s to balance things out? Some 25,000 to 30,000 UK nationals
about making sure students that come here, come to study.” now study in EU universities, against 125,000 EU students
currently in the UK, according to Universities UK.
On the plus side, there’s the EU Erasmus Plus student
exchange scheme, launched in 1987. This allows students
to study in the EU free for a year, including living expenses.
Over 200,000 students have already benefited.
Secretary of State for Exiting the EU, David Davis, has
said the UK could continue to pay for access to particular
schemes – and Foreign Secretary Boris Johnson hinted that
Erasmus could be one of the few EU projects the UK may
support.

A question of money
Nevertheless, there is little guidance over how Brexit might
affect EU student fee structures. This could cement negative
sentiment on higher education in the UK.
At present, EU students are entitled to a reciprocal
agreement which allows them to pay identical fees to UK
students, including loans of up to £9,000 per year. (They pay
no fees at Scottish universities.)
EU students applying to study in the 2017/18 academic year
will still be eligible for student loans and grants for the full
duration of their courses – allowing some certainty over their
medium-term accommodation needs.
However, it is possible that as soon as the UK leaves the
EU – under whatever exit arrangements – these rights will
cease. Even reclassifying them as ‘international students’
would mean a 50% increase in fees – a clear deterrent for
students.
There is precedent. In 2012/13, UK tuition fees rose from
£3,000 to an average of £8,500 per year and EU student
numbers may have reduced by up 19.7% as a result, based
on actual applications against projected numbers and
historic rates of growth.

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 Brexit and student housing 5

Home away from home The risk for real estate businesses is therefore a dramatic
reverse of the trend. In recent years, the rising number of
The switch from traditional university halls to privately built
EU students have been proportionately more attracted to
accommodation has been a boon for developers: demand
PBSA. Post-Brexit – and even before changes to migration
has risen steadily, both in numbers and the quality of living
and fee rules – their numbers, and therefore the need for
facilities. Any large drop in the number of overseas students
accommodation, are bound to decline.
will, however, disproportionately affect this sector.
Brexit is not all gloom, however. The depreciation of sterling
• Non-UK students are 65% more likely to live in PBSA than
makes UK living and fees more attractive and There remains
UK students.
the pull of a world-leading UK degree. Plus, there’s also
• In 2007/08, 2.9% of full-time, UK-domiciled students lived rising demand from an increasingly influential – and wealthy
in private PBSA, rising to 5.1% in 2013-14. – Asian and African middle class.
• The proportion living in university PBSA dropped from Those groups are not immune to the risk of the UK
18.9% to 17% over the same period. government cracking down on net migration. And Brexit
might still be sending the message that the UK is less
• The proportion of non-UK students living in private PBSA welcoming to foreigners. Nevertheless, they do still offer a
has grown from 4.3% to 10.8% over the same period. potential growth market for UK education – and the student
• University PBSA has dropped from 31% to 26.3%. accommodation that goes with it.
Feedback suggests that university PBSA remains the most
popular choice of accommodation for non-UK students.
But supply constraints have caused them to seek out other
forms of accommodation, particularly as they are obviously
unable to live at home during their studies.

Term time accommodation of full-time UK domiciled students Term time accommodation of full-time non-UK domiciled
2007-08 – 2013-14 students 2007-08 – 2013-14
100% 100%
14.4% 12.0% 11.8% 11.3% 9.9% 9.2% 2.9% (1.4%) 14.2% 12.7% 7.8% 1.5%
15.1% 18.4% 17.8% 15.8% 16.2% 15.9%

80% 80% 13.3% 12.9% (1.7%) (3.6%)

15.9% 14.0% 14.3%
40.8% 40.3% 2.6% (2.5%) 20.6% 17.2%
44.7% 40.2% 41.8% 40.5% 41.3%
60% 60% 17.3% 3.6%
35.7% 37.4%
31.6% 35.0% 36.8% 35.9%
25.6%
40% 7.8% 1.8%
40%
22.1% 23.9% 25.4% 27.2% 26.6% 28.3% 28.4% 4.3% 10.7% 10.8% 26.7% 16.4%
5.1% 6.5% 6.9% 8.2%
20% 2.9% 3.3% 3.9% 4.2% 4.5% 4.8% 5.1% 14.9% 5.1% 20%
31.0% 28.4% 26.8% 26.2% 25.8% 26.2% 26.3% 2.9% 2.7%
18.9% 17.6% 16.9% 16.3% 16.3% 16.2% 17.0% (0.9%) 0.7%
0% 0%
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
University PBSA Private PBSA HMO Living at home Other University PBSA Private PBSA HMO Living at home Other

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 6

Winners and losers London is also popular with EU students, who make up
10.3% of the full-time total. The numbers vary from 3% to
So where in the UK is the real estate sector most vulnerable
25% depending on the institutions, with arts universities
to a post-Brexit shift in student location choices?
accounting for the highest percentage.
Scottish cities are popular with young continentals because
There are 12 university cities where EU nationals make up
they don’t have to pay fee and are therefore particularly
more than 5% of full-time students. These cities – including
exposed. In Aberdeen, for example, 16.3% of full-time
Oxford (9.1%), Cambridge (9.2%), Coventry and Bath – are
students are EU nationals, while in Edinburgh, the
home to more than 50% of the UK’s EU student population.
proportion is 12.2%.

Largest 26 UK university cities 2014-15

Scottish universities City EU student proportion Number of London’s multiple

of full time students EU students
are particularly universities have a
Aberdeen 16.3% 3,415
popular with EU high proportion of
Edinburgh 12.2% 5,950
students due to an EU students at an
absence of fees. London 10.3% 28,645 aggregated level
They are particularly Glasgow 9.9% 5,455 Individual
exposed to the Cambridge 9.2% 3,020 universities range
impact of Brexit Oxford 9.1% 2,940 in EU student
Coventry 8.1% 3,225 penetration from
Canterbury 7.7% 2,525 3% to 25%, with
Oxbridge’s arts universities
Southampton 7.2% 2,280
international having the highest
Bath 7.2% 1,410
reputation is likely percentage
to enable them to Exeter 6.0% 1,170
turn EU student Manchester 5.1% 3,930
vacancies into UK or Cardiff 4.8% 2,445 Six of the largest
international places Birmingham 4.5% 2,750 English University
at the expense of York 4.4% 895 cities are more
other universities Belfast 4.3% 1,650 exposed than
Bristol 3.8% 1,545 others to potential
Nottingham 3.8% 1,930 loss of EU students
There are 12
university cities for Leicester 3.8% 1,155
which EU students Newcastle 3.2% 1,375
make up more than Sheffield 2.9% 1,425
5% of full time Leeds 2.9% 1,450
student numbers Swansea 2.8% 555
These 12 Plymouth 2.7% 620
universities are Liverpool 2.1% 885
home to over 50% Top 26 cities EU students 6.8% 82,645
of the UK’s EU UK full-time EU students 6.4% 107,925
student population All UK EU students 5.5% 124,580

Note: The EU student proportion included in the table for All UK EU students includes both full and part
time students, other proportion values are based on full time students only.
Source: HESA

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 Brexit and student housing 7

Oxford and Cambridge are likely outliers – their international Developers could also use Brexit as an opportunity to invest
reputation should enable them to turn EU student vacancies in accommodation in Ireland and other EU countries – or in
into UK or international places at the expense of other Tier 2 UK cities suffering from a limited supply of student
universities. Scottish universities may also be protected beds.
by their no-fee structure. London will be shielded to some
In this time of uncertainty, market analysis and investor
extent by its global appeal.
sentiment remain critical, especially given wider structural
Equally, cities with a low existing proportion of EU changes in cities, shifting work patterns, housing availability
students – Swansea, Plymouth and Liverpool – shouldn’t be and education policy.
significantly affected.
Developers need to cut through the Brexit noise to plan
Other cities – and their accommodation providers – aren’t their next steps. Risks are starting to crystallise. But there
so lucky. Six of the largest English university cities are are undoubtedly genuine new opportunities out there in
particularly exposed: Coventry, Canterbury, Southampton, the real estate sector as Europe realigns and the UK and its
Bath, Exeter and Manchester. businesses start to cast their sights further afield.

Designing a robust response

Success is all about location, as any real estate specialist Key questions for real estate
knows. The first step for developers and investors is to
target cities that present the most sustainable opportunities
developers and investors:
(see box).
• How will the changing environment affect my
We continue to watch wider global trends carefully. existing development pipeline and investment
International student numbers may keep rising to cover the portfolio?
EU drop-off, possibly helped by generous visa schemes.
• Do we need to modify or reposition our existing
The UK higher education sector remains highly respected
assets or planned developments to reflect a
worldwide, the student sector has strong rental growth and
changed environment?
there is still the problem of significant structural undersupply
of accommodation in the UK. • Which cities may present the best opportunities
going forward?
The sector has also shown itself to be largely recession-
proof, if the economy should begin to falter. During such • When will the maturity point arrive for the PBSA
periods, higher education has traditionally benefited from market when supply and demand are in balance
young people deciding to enter college and university rather in each key market?
than a fragile jobs market. Older workers often look to
• When do I need to diversify the business
retrain in new skills.
beyond student accommodation?

© 2017 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity.
Andy Pyle
Andy leads our Real Estate practice in the UK,
and is responsible for overseeing all of KPMG’s
services to Real Estate clients. Andy is a
Chartered Accountant, has been a partner for
eight years and is a Deal Advisory specialist.
E: andy.pyle@kpmg.co.uk
T: +44 (0)7968 987345

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