Universities could generate multi-billion pound windfall from renewing crumbling estates

Universities could save billions of pounds in operational costs and create new campus housing to entice students, according to a major new report.

Around a third of institutions’ property budgets could be saved by making better use of space, by modernising facilities and by sharing them between across complimentary courses.

According to Education Nation: The Graduation of Student Housing, a third of university-owned student housing is in a poor state of repair.

The report by Addleshaw Goddard said that by partnering with private developers or pension funds to redevelop this housing could generate around £5bn of investment and provide long-term income for investors by creating new joint ventures in which universities would have a share. Types of structures that have been used by universities include on-campus demand risk transactions, nominations agreements and more informal short-term letting arrangements to facilitate the provision of better accommodation with a view to improving the student experience.

The report estimates that most universities only fully optimise a quarter of their estates. Cost savings and income generated from efficiency savings and the increased attractiveness of universities on account of having more and higher quality accommodation on campus.

Around 100,000 beds on campus are in a poor state of repair with a £5 billion backlog of maintenance investment.

Addleshaw Goddard says that despite the sharp growth in investment, with student numbers still growing, the peak of the student accommodation market is likely to still be some way off.

Further demand is also expected from increases in student numbers from the UK and abroad, with the government projecting an increase of 200,000 students by 2020.

Many students are housed in purpose built student accommodation (PBSA). Around £6bn was invested during 2015, the report said, higher than investment into North America’s student housing sector. 83 percent of the increase in student numbers since 2007 has been borne by the private rented sector. The fear is that without more purpose-built accommodation, the continued growth of student numbers could intensify the pressure on UK housing.

However, with many local councils opposed to granting permission for student housing many developers find it tough to build new schemes. The report also warns that investors risk being burned by developing PBSA in secondary locations where rent levels may not hold up.

Andrew McVeigh, Joint Head of Student Accommodation at Addleshaw Goddard, says:

“Clearly universities should not want to sell off the family silver. But where they can maintain an interest, sell a long lease to developers and receive both a capital receipt and quality new accommodation, there is a strong argument for partnering.”

John Roberts, construction industry leader at Willis, said:

“The important thing is understanding the student market, and the type of use the properties will have. It also needs to be understood that there is the potential for the property to be left vacant for long periods, such as during holiday periods like Christmas.

“This may require some additional considerations in respect of security, protection against frost, flood damage and fire protection. A lot of the cost associated with these typical risk factors and improvements can often be reflected in reduced insurance premiums or levels of excess.”