Students won’t live in grotty bedsits any more. And with 1 million of them needing somewhere to live, it’s a market you’d be wise to swot up on – just leave the kids to add their own personal touches …

Your starter for 10. How many full-time students are there in the UK at any one time? Come on, come on. Time’s up. The answer is 1.4 million – a number that has increased by 50% over the past decade, giving us the second largest student population in Europe. Although this growth is expected to slow in the next four years, the need to house them all makes student accommodation an increasingly lucrative construction market.

It is not, however, a market with low expectations. Gone are the days of grotty digs with mouldy walls and peeling wallpaper. These days, students contribute tens of thousands of pounds to their education and they expect a home from home with en-suite bathrooms and wireless broadband.

Bradford University, for example, is tendering for a 1,000-bed student eco-village, with live/work units for graduates to launch businesses from after they complete their courses.

Laurence Brett, a partner at Davis Langdon, says the pressure of a more demanding market has already led universities to carry out initial improvement works, and he expects tuition fees to drive the market for refurbishment and new buildings over the next three to five years.

It’s a sizeable market. According to property consultant King Sturge, there are 300,000 student beds provided by universities and 100,000 by the private sector. With about 1 million more full-time students out there, that suggests a huge gap in the market.

Of the £20bn of student accommodation stock, about £6.5bn is held by the private sector, up from £3.5bn two years ago. Jim Wheelan, a researcher at surveyor GVA Grimley, says that for some of the newer universities, the need to increase funding has driven them to sell off their accommodation to the private sector.

“They understand the market value of having good quality residences,” he says. For these universities, student halls have been used to attract wealthier overseas students.

Many universities have chosen a partnership route to fund accommodation, with money from specialist developers via special purpose vehicles (see boxes, below).

The strict procurement rules demanded of all public institutions can make bidding for work on university construction projects a lengthy process, but working with private developers is much less bureaucratic.

With demand and private investment increasing all the time, now might be the time to go back to college.

How to get in

Developers tend to work with firms they know well, but experience in other sectors such as hotels or modular construction could translate.

Unite is one of the largest private sector clients and it has a regular framework of between six and eight regional and national contractors it uses on a design-and-build basis. It has QS and project management experience in house; architects are employed on a framework basis as well, from a list of about six firms.

“This was really important for us as we have a modular construction side and it’s vital that consultants understand how those systems work,” says Jon Whittles, acquisition and development director.

“We tend to work with people who have a good knowledge of our products and can get the maximum out of them. Modular construction is not the glamorous side of building and we need to work with a particular type of architect that can take our products, get the maximum density and design a building that looks good and gets planning permission.” The frameworks are reviewed on an ongoing basis.

Whittles says it receives a number of approaches from contractors when its projects enter the planning process. “Cold approaches like that are not particularly successful. Firms do better if they call up and say, ‘We’re a large firm of contractors, we’d like to work with Unite’.

“We want contractors who are going to be involved in the design and costings from an early stage. By planning we’ll already have identified a firm.”

How the funding works

Special purpose vehicles have encouraged a more diverse market, with housing associations as well as developers operating in it. Sanctuary Housing, for example, manages about 5,500 student units through a subsidiary company.

The bigger players are Unite, Jarvis and Opal. These developers work more independently, looking for gaps in the market. They undertake the planning, development and management of accommodation but depend on nomination agreements with universities to direct students towards these residences. These guarantee rental and occupancy levels. This is now the larger end of the market, with Unite alone holding stock valued at £1.1bn.

Where the market is

The more active markets in the UK have been major UK cities with one or more universities. Unite’s top three markets have been Sheffield, Liverpool and London, for example. Analysts are pointing to London as the emerging hotspot along with Leeds, Oxford and Birmingham.

According to property agent Savills, London has historically been overlooked because of high land values but more developers are recognising the supply and demand imbalance in the capital. In fact, London has the second largest number of planning applications for student halls listed in the UK, suggesting a burgeoning market.

The newer universities are also expected to play a larger role in the student accommodation market. “Some of the lower tiers of university have a history of poorer quality facilities and will be looking at other schemes of funding such as private providers,” says Davis Langdon’s Brett.

But for some developers these do pose greater risks. Hilary Gardener, commercial director of Sanctuary Housing, admits that the group takes a harder look at ex-polytechnics. “They don’t have the same track record of student numbers,” she says.

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