Initial Views on the Impact of COVID-19 on the Student Accommodation Sector

There are very few sectors of the property market unaffected by the immediate impact of the COVID-19 crisis, but for some, the effect will undoubtedly have long lasting implications. The student accommodation sector, often referred to as PBSA (Purpose Built Student Accommodation), has taken an immediate hit with classes cancelled for the summer term of 2020/2021 and a high proportion of students heading home. 

As the UK moves gradually out of lockdown, we will take a look at initial evidence of how the COVID-19 crisis might impact the sector in the short, medium and long term. 

Short Term Impact

• A number of the major PBSA operators, such as Unite & IQ, followed the example set by most Universities, by choosing to waive remaining 2019/2000 rents due for those students who had vacated early. An easier decision to make for those with very large portfolios seeking to safeguard their reputations than those who perhaps have smaller highly geared holdings. 
• Some overseas students have been unable to travel home once lockdown commenced and have been forced to sit it out in their student accommodation. Some operators have quoted occupancy levels at 40%.
• Many Universities are voicing serious concerns about the impact on their finances as a result of lost tuition fees due to COVID-19, but a plea to government for a £2Bn bailout has, to date, been rebuffed. 

Medium Term Impact

• Outlook for the 2020/2021 academic year is subject to a lot of uncertainty with many universities already announcing delayed starts to term and plans for lectures to be held online. Plans are still being made to teach in person in smaller groups with some institutions actively encouraging students to make plans to be on campus from the autumn.
• Overseas students travelling to the UK to study will have to quarantine for 14 days which might lead to some not taking up places.
• Operators are anecdotally reporting that bookings for 2020/2021 are holding up well with many at similar levels to last year. 
• Demand is strongest for studios which will provide the best opportunity for social distancing which is somewhat ironic given that the industry has strongly favoured cluster focused schemes in recent years. 
• The Universities and Colleges Admissions Service, UCAS is reporting that application numbers are ahead of 2019/2020 although the number of deferrals or cancellations will only become clear in the coming weeks

Long Term Impact

• It is hoped that the impact beyond 2020/2021 may be limited, but this is far from certain and some universities might need to consider mergers if they are to survive. Insolvency of some institutions is a real prospect.
• Similarly, there could be considerable distress in the PBSA sector if there is a prolonged downturn in student numbers with the larger operators’ best placed to weather the storm. 
• Development activity will undoubtedly be impacted but provided student numbers recover, there remain structural under-supply in several locations such as London, Manchester and Edinburgh. 
• The behaviours of overseas students will be key as they pay the highest tuition fees and favour PBSA over HMO’s.

In summary, the short to medium term outlook remains uncertain, but there are signs that the PBSA sector might weather the COVID-19 storm better than some others. The confidence and ability of overseas students to return to the UK will be key. 

For further information on the student accommodation sector and Ryden's Residential, Investment & Development department please click here.