Rents rise, beds fall: the student accommodation crisis

Cushman & Wakefield’s long awaited Annual Student Accommodation Report is here.

Students are paying record-high rents. This is crucial for students and their parents, but it also raises concerns for businesses and investors. For the first time, research is questioning whether student housing is still a reliable and profitable investment. With fewer properties available, rents are being pushed even higher.

Nearly a quarter of student beds in England cost more than the maximum student loan.

23 per cent of student beds in England now cost more than the maximum loan, making them unaffordable for many. In some cities, only 12 per cent of students can find housing within loan limits.

Developers are also facing rising building costs and stricter regulations, meaning they have to charge more rent to make projects viable. As a result, less than 20 per cent of planned student housing is currently being built, and new developments need to charge around £265 per week to break even.

Affordability is a growing issue.

University-owned housing rents rose by 4.44 per cent, nearly four times faster than private sector rents. Surprisingly, lower-quality housing saw bigger rent increases than high-end options.

While demand for beds is high, some areas are seeing empty rooms due to falling international student numbers and rising costs.

David Feeney, partner at Cushman & Wakefield, said:

“Unfilled beds is a concern. We project that postgraduate numbers have fallen by over 17 per cent over the last two years, and whilst international student numbers are likely to stabilise after these initial visa shockwaves, we’re also seeing a rise in commuting students or those living at home because the cost of accommodation is simply too high for many.”

New housing supply is still low.

Only 18,200 new beds were added this year – still far below pre-pandemic levels. Over the past five years, just 88,000 beds were built, compared to 158,000 in the five years before that.

Despite these challenges, Cushman & Wakefield claim there is still strong investment interest in student housing, especially in cities where demand is high and supply is low. Even if demand grows slowly over the next five years, around 750,000 students could still be left without a bed.

Building student housing is becoming harder to justify financially.

Even though there are more than two students for every available student bed, cities like Sheffield are seeing fewer students. In Sheffield, the number of students needing housing dropped by 17.3 per cent in two years. This has caused rents to fall by 5.5 per cent, the biggest drop in the UK. However, Cushman & Wakefield note that cities like Sheffield often bounce back over time.

Developers are playing it safe.

Just three cities – London, Nottingham, and Leeds – account for nearly half of all new student beds, showing that developers are focusing on major markets where building is still financially viable.

Nottingham has grown rapidly, becoming the UK’s second-largest student housing market with a 35 per cent increase in supply. Leeds saw its biggest delivery of new beds in five years, but with demand falling and more beds planned, it could face oversupply.

London, for the first time, exceeded its target of 3,500 new beds per year.

David Feeney added:

“Viability issues and risk aversion mean developers are now focusing on a limited number of ‘premium’ locations. The potential for growth and weight of the development pipeline varies significantly from market to market. Our analysis shows that student-to-bed ratios (SBR) are set to fall in half of the 14 largest locations over coming years.”

“We have moved on from the arms race seen a few years ago of developing the best accommodation with the best amenity spaces, and the fear of not meeting that expectation. Today, our data indicates that value for money concerns mean quality, at least in the mid-market, is no longer the determining factor.”

The future is hopeful.

David Feeney commented:

“Whilst markets don’t like uncertainty, investors still see huge opportunity in a number of undersupplied locations across the pricing spectrum, provided value-for-money and a good student experience is delivered. ‘Know your market’ is a truer sentiment now than ever before.”

“Overall, the report signals that the Purpose Built Student Accommodation sector remains a robust, defensive asset class for investment, supported by strong demand and supply fundamentals. Looking forward, even under an extremely unlikely zero-demand growth scenario, student demand will continue to significantly outstrip supply by 2030. Needless to say, the UK is one of the top higher-educational destinations, with four institutions in the global top 10.”