New Partnership Models Create Opportunity for University Student Accommodation

Historically, the provision of purpose built student accommodation was an activity undertaken almost exclusively by universities generally using their own land and funded through borrowing or capital reserves, building substantial portfolios as they went. A number of pressures (financial and practical) have driven changes to this model and led to a growing involvement from the private sector.
The traditional model came with planning, design and construction risks as well as requiring an experienced capital programme team or trusted external advisors. In order to deliver a good product, on time and on budget.

Institutions also retained responsibility for the operation and long term building maintenance. When residential property management may not be seen as core business it’s a challenge to allocate appropriate resources to planned maintenance and refurbishment programmes.

Student accommodation is far from being the only demand on universities’ capital and so many universities have struggled to balance this equation. Whilst maintenance underfunding may be sustainable short term, the introduction of tuition fees alongside rising expectations of students have brought the quality of living accommodation into much sharper focus.

Many universities therefore find themselves with halls of residence that underperform environmentally, operationally and financially.  Neither do they offer students the experience they are increasingly expecting.  Student recruitment, retention and satisfaction can all be affected as a result. This is not an easy position to reverse without substantial injections of capital and management time.

The Private Sector Opportunity

The private sector has responded to the opportunities that purpose built student accommodation presents. Most university towns and cities have seen the development of private sector funded student accommodation; some speculative aimed at the direct let market and some built in partnership with universities.

This trend offers options and flexibility in uncertain times. Brand new high quality accommodation can be provided without the risks that come with developing ‘in house’.

Several models are available ranging from a simple ‘soft’ nomination agreements requiring no financial commitment, to long term full repairing and insuring leases potentially including the transfer of the freehold of the building to the university at the end of the term.

Choosing the right model depends on a number of factors:

  • The strategy of the university and long term student number projections.
  • Current local accommodation supply and demand.
  • The importance of directly controlling the accommodation offering.
  • Whether an income stream from student accommodation is important.
  • The rental affordability position for students.
  • The institution’s balance sheet and other financial commitments.

Decisions are also affected by local political pressures, the appetite for risk, and the experience and capacity of the senior management team.

The Existing Estate

However, new accommodation takes time to come to fruition and accommodation strategies therefore need to also incorporate existing university owned accommodation. This demands a detailed understanding of condition, costs, income profile and whether the hall is considered ‘core’ to the accommodation offering.

Some existing owned halls may be better suited to redevelopment for academic use. Others may be best sold into the private market either for student accommodation or for alternative uses.  Capital receipts from sales could potentially fund a long term planned refurbishment programme for the core residential estate, but sometimes that equation won’t balance.

The private sector has a part to play here and there are now plenty of examples of the wholesale transfer of existing accommodation alongside the provision of new halls. The drivers behind these deals are complex and unique but taking the transaction off balance sheet and securing a capital receipt often feature.

Large scale stock transfers are complex. Negotiations must include things such as staffing, branding and marketing, the refurbishment needs and detailed supply/demand analysis. Freehold ownership can remain with the institution along with a retained interest, often as part of a joint venture.

Assessing an institution’s accommodation requirements is a complex and multifaceted process. It’s one that benefits from an early involvement of expertise from different organisational areas.

David Podesta is a former Estate Manager at the University of Southampton and is now Development Manager with Osborne;

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