Student housing University partnerships in the UK Autumn 2018 update
Summary
Glossary In autumn 2016 we published Student housing: University partnerships in the UK, the first study of its kind, which DBFO Design, Build, Finance looked at the rise of student housing partnerships between and Operate a type of off-balance universities and private-sector operators in the UK in the sheet partnership deal where last 15 years. We provided a brief update in autumn 2017. the university is able to transfer demand risk to a partner.
This autumn 2018 update provides an overview of what has happened in the market over PBSA the last year, and you may want to read this in conjunction with the original report. Purpose Built Student Accommodation. c. 2,100 partnership beds There are c. 4,700 beds at SHP were opened Preferred Bidder stage and Student Housing Partner a private sector organisation c. 3,200 being procured at or consortium that leads a DBFO the moment project to build or refurbish PBSA Two deals were closed that on university land. will create a total of 1,374 more beds We are aware of five more projects at earlier stages, totalling more than 5,000 new beds
University partnerships in the UK 3 University, DBFO, and direct-let beds
PBSA as a whole PBSA as a whole has continued to grow in the UK. Figure 1 shows that there are now has continued to more than 550,000 PBSA beds in the UK. Since last year, the direct let market increased grow in the UK by c. 8% and the DBFO and income strip market increased by c. 6%, with more than 18,000 new direct let beds and c. 3,200 DBFO and income strip schemes opening for the 2018/19 academic year.
Figure 1: The growth of PBSA and student numbers in the UK
575,000 1,800,000 550,000 525,000 500,000 1,600,000 475,000 450,000 1,400,000 425,000 400,000 375,000 1,200,000 350,000 325,000 1,000,000 300,000
Beds 275,000
250,000 800,000 Students 225,000 200,000 175,000 600,000 150,000 125,000 400,000 100,000 75,000 50,000 200,000 25,000 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 University DBFO and income strips Direct let Full-time students
Sources: HESA, JLL research. Years indicate first year of operation
Figure 2: The growth in DBFO and income strip schemes
55,000 50,000 45,000 40,000 35,000 30,000
Beds 25,000 20,000 15,000 10,000 5,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
DBFO (stock transfer) DBFO (new build) Income strip (existing) Income strip (new build)
Source: JLL research. Years indicate first year of operation
4 Student housing The partners
New beds opened Additions to the pipeline c. 2,100 new DBFO beds were opened for the 2018/19 academic year: In 2018, three additional schemes reached Preferred Bidder stage: • CLV opened 391 new beds as part of extensions of University • Equitix has been appointed for a 1,400-bed new build Hall and Agnes Blackadder, at the University of St Andrews. scheme at the University of York’s Heslington East Campus, and a 1,332-bed stock transfer and new build scheme at • Uliving opened 643 beds at The Copse, at the University Kingston University. of Essex. • Uliving has been appointed for an 800-bed scheme at the • UPP opened 766 beds at the University of Hull, with a new University of Brighton’s Moulsecoomb Campus. building (The Courtyard) and stock transfer of Taylor Court. In total, there are now more than 4,700 beds in the pipeline, where • Balfour Beatty opened c. 300 beds as a first phase of the SHPs have been appointed Preferred Bidder and are working with East Slope Residences Project at the University of Sussex. universities towards Financial Close.
Deals closed In addition, there are projects that are currently in procurement at the University of Exeter, Royal Holloway University of London, • UPP reached Financial Close with the University of Exeter for and the University of Bristol which total around 3,200 beds. 382 beds in schemes at its Moberly and Spreytonway sites. We are also aware of five more projects (totalling more than • Equitix and CLV reached Financial Close with Durham 5,000 new beds) that are being considered by universities for University for a 992-bed scheme as part of creating a procurement in 2019. new college at Mount Oswald in August 2018.
Figure 3: Total DBFO beds per SHP
60,000
50,000
40,000
30,000 Pipeline Beds Beds
Number of DBFO beds Number of DBFO Equitix Balfour Beatty 20,000 Uliving UPP CLV 10,000 Sanctuary students
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: JLL research. Years indicate first year of operation
University partnerships in the UK 5 Commentary
We have seen a slowing of the pipeline for DBFO projects coming Some have also stepped outside of the tried and tested process, to market in 2018. We think that there are several factors that are like the University of Bristol, who rather than seeking consortia, making universities cautious at this time about capital investment have chosen to disaggregate their procurement process, by in general. selecting an equity and operational partner who can then jointly procure the design and build element on a site-by-site basis. This Early in 2018, the Prime Minister launched of a major review of both lessens the construction risk and allows for more flexibility in post-18 education, which is not set to conclude until early 2019, selecting the organisations who will form part of the partnership. although interim findings may come out before then. Universities are particularly interested in how the outcomes may impact Another reason for the apparent slowing of the DBFO pipeline is funding streams. the increasing number of options around project structures that universities are now exploring. We are aware of an increasing We are now also at the nadir of the ‘demographic dip’ in 18–year- trend amongst universities to recognise the value of their own olds, which has driven up competition for student numbers, covenant in securing additional student housing, and some are and universities are waiting to see how they have fared with still keen to invest in traditional, on-balance sheet schemes. recruitment for 2018/19 before making many strategic decisions. Many universities have come to regard student housing as At the same time, we have seen continued growth in the PBSA something that sits outside their core business but is still crucial direct let market. This has given some universities more options to get right in terms of student experience; nevertheless, there are about how they can secure beds in the short-term through still some who take a traditional view of it providing an important nominations agreements, in ways that both reduce their balance commercial income. sheet exposure and provide future flexibility should student numbers adversely change. Also, project structures are becoming more complex. Universities are often taking minority stakes in SPVs, and some income strip Finally, the collapse of Carillion in early 2018 has driven up funders have started to discuss risk transfer arrangements that construction costs. It has also made many contractors lose much are closer to DBFO-style deals. The distinctions between different of their appetite for risk, and this has been a particular issue given structures (summarised on page 5 of our 2016 report) are starting the length of time that many DBFO projects take to procure, to blur, and we are now seeing a plethora of different models that and the risks that universities expect their Preferred Bidders offer universities hugely different levels of control. to take prior to Financial Close. To address this issue, we have encouraged our university clients to look closely at how projects can be de-risked before coming to market.
Image courtesy of University of Gloucestershire
6 Student housing The universities
The number of universities who have now completed DBFO deals or Figure 4 shows the extent to which DBFO beds now (and will) selected a Preferred Bidder to be their SHP has increased to 30, with make up these universities’ portfolios. the addition of the Universities of Brighton, Durham, Kingston and York.
Figure 4: DBFO beds as a proportion of University portfolios
8,000 100%
7,500
7,000
6,500 80% 6,000
5,500
5,000 60% 4,500
Beds 4,000
3,500 40% 3,000
2,500 beds in portfolio of DBFO Proportion
2,000 20% 1,500
1,000
500 0 0% University of Hull University of York University of Kent University of Essex Durham University University of Exeter Kingston University Kingston University of Sussex University of Salford Lancaster University Lancaster Plymouth University University of London University of Dundee University of Reading University of Glasgow University of Brighton University of Brighton University of Leicester University of Leicester Royal College of Music College Royal Aberystwyth University University of Edinburgh University of St Andrews University of St Leeds Beckett University Beckett Leeds University of Nottingham Loughborough University Loughborough Oxford Brookes University Brookes Oxford University of Bedfordshire University of Hertfordshire Nottingham Trent University Trent Nottingham University of Gloucestershire Goldsmiths, University of London
DBFO (new build) DBFO (pipeline) DBFO (stock transfer) University freehold University leased Proportion of DBFO beds in portfolio
Source: HESA 2016/17 and JLL analysis. ‘Pipeline’ includes schemes at Preferred Bidder and under construction
University partnerships in the UK 7 Contacts Student Housing and Higher Education
Robert Kingham Philip Hillman Martin LeGrice Director Chairman Head of Alternative Higher Education Alternatives Investment
+44 (0)20 7087 5095 +44 (0)20 7087 5133 +44 (0)20 7087 5342 [email protected] [email protected] [email protected]
Barbara Alves David Stephens Senior Consultant Associate Director Higher Education Higher Education
+44 (0)20 3147 1816 +44 (0)20 7852 4087 [email protected] [email protected]
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