The student housing market has been a gold mine for investors, particularly REITs like Unite and Empiric Student Property. But with the tide turning on student numbers and university finances, are those golden days over? Investors Chronicle reported on the numbers.

The Student Housing Boom

The past two decades have seen a dramatic increase in student numbers, driven largely by a surge in foreign students. This fuelled a frenzy of building new, often luxurious, student accommodation. REITs reaped the rewards, with their share prices consistently outperforming the wider market.

A Storm on the Horizon

However, clouds are gathering on the horizon. Here’s the lowdown:

• Foreign Student Numbers Are Falling: The UK’s reliance on foreign students, who pay much higher fees, is starting to wane. Changes to visa rules are discouraging overseas students from coming, and the numbers are already falling.
• University Finances Are In Trouble: Universities are struggling. Fees haven’t increased in real terms since 2017, leading to growing deficits and pressure to cut costs. Some institutions are already resorting to redundancies and reducing course offerings.

The Warning Signs

The impact of these changes is starting to be felt:

• Empty Beds: Even at prestigious universities, purpose-built student accommodation is beginning to see empty beds, particularly in cities like Exeter and Nottingham.
• HMO Slowdown: The market for student conversions is slowing as interest rates rise. This is particularly tough for smaller landlords who are seeing their properties struggle to sell.

Experts Sound the Alarm

Max Allison-Wright, a veteran real estate surveyor, says the market is becoming “brutal”. He warns that only the most savvy and careful investors will succeed.

The Government’s Role

The new Labour government has promised to address the university funding crisis but so far hasn’t offered any concrete plans. The situation is uncertain, and any changes could have a significant impact on the student housing market.

What This Means for Investors

REITs have enjoyed a good run, but the party might be over. While they remain some of the best-performing assets in their class, their share prices are becoming more volatile, reflecting the growing uncertainty in the student market.

Key Takeaways for Investors:

• Location is Everything: Not all student housing markets are created equal. The prestige of the university and the local economy are key factors to consider.
• Beware the Foreign Student Bubble: The reliance on foreign students is a risk factor. Investors need to assess the potential impact of any changes to visa rules.
• Don’t Ignore the Wider University Landscape: The financial health of universities is directly linked to the student housing market. Keep an eye on university finances and any proposed reforms.

The student housing market is no longer a guaranteed winner. Investors need to be cautious and understand the changing landscape before committing their money.