It is unlikely that student housing providers will be able to immediately tap into this new source of unlocked demand and so in the shorter term it is the supply and demand dynamics which are most important to identifying markets for investment.
To help identify those markets that are most suitable for investment, we have created a ranking model for university towns and cities across the UK based on a number of inputs which we have examined in more detail in this section. The final rankings are on page nine.
The relative performance of applications gives an early indicator of demand for the coming year. With the increase in tuition fees up to a maximum of £9,000 per annum for the 2012-13 academic year, university applications fell by 6.7% on the previous year but have recovered slightly (2.7%) for the 2013-14 year.
However, demand from outside of Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5% over the last six years.
In terms of actual demand, the growth in student numbers at individual institutions is arguably the most important component although it is also important to understand the demographic profile including if they are domestic or international and whether they are likely to form demand for bespoke student accommodation.
The overall 0.4% fall in domestic student numbers between 2010-11 and 2011-12 was counterbalanced by a 1.7% increase in international students leaving student numbers broadly flat overall but this hides a wide variety of performance across different towns and cities.
Although some towns/cities in the chart opposite may demonstrate strong growth for one or both types of student over the period, strong growth may also hint at greater volatility in student numbers.
With the ongoing austerity drive, the financial health of universities is a key consideration for developers of and investors in student housing.
Graph 8 shows how net income and surpluses have changed between the 2010-11 and 2011-12 academic years. Universities that have seen positive increases in income over the last year are the strongest performers whilst universities that have seen a fall in income are at greater risk but the majority have still managed to record a surplus during 2011-12.
Universities that have recorded a deficit during 2011-12, particularly when combined with falling net income are most at risk although this may be due to on-going improvements such as at the University of Reading.
Using the combination of the measures discussed in this report we have constructed a overall ranking system of university towns and cities across the UK.
Those locations within the ‘First’ category offer the strongest demand for accommodation but competition may be strong while locations in the ‘Pass’ category are considered those weakest demand indicators, although there may be specific reasons why investment is still warranted.