As discussed in a recent blog post, there are still many unknowns related to the COVID-19 pandemic and its impact on the global economy and society. This also extends to higher education and – linked to it – to purpose-built student accommodation (PBSA).
Beyond the crisis and its cyclical impact though, there are structural trends supporting the investment case in student housing.
It is not clear yet how universities across the globe will organise and offer courses for the coming term. French and German universities are preparing for blended teaching – a combination of online lectures and some face-to-face teaching. In addition to that, the start of the coming term has been postponed by one month to November 2020 in Germany.
In the UK, the universities of Cambridge, Manchester and Nottingham Trent have all confirmed that they will be delivering blended teaching, at least for the first term, but other universities are still discussing other options, like for example creating ‘social bubbles’ for student housing and adapting the university campus to allow for as much social distancing as possible when campuses reopen.
With full fees being charged even if courses are taught online and a high level of uncertainty still regarding travel, many international students are considering delaying their studies. A recent study conducted by QS among prospective international students showed that 64% of respondents stated in May that their plans to study abroad had been affected by COVID-19. Of those who stated that their plans had been affected, 53% intend to delay or defer their studies until next year.
Even domestic entry students might consider delaying their university enrolment, being reluctant to start their student career with online interaction only. In a recent poll of 516 students who have applied to a UK university this year, 71% of applicants would support moving the start of their first year of university to a later time if it meant more face-to-face teaching. However, the full extent of the impact on student numbers at universities this coming term will only transpire closer to application deadlines, as many students are still in a wait-and-see-mode.
What we witnessed following the 2008/09 global financial crisis is that student numbers increased as university education is considered more important after a crisis and that the labour market for less-qualified school leavers was minimal.
It is likely that the current crisis will have a similar effect on student numbers. Graduates who are not able to find a job in the current difficult job market, are likely to choose to add a further specialisation or skill to their resume and enrol for a post-graduate course in order to compete in a globalised and competitive job market.
The underlying structural drivers for higher education, in the long run, remain multi-layered and very supportive. As emerging market economies have evolved, there has been a strong growth in higher education demand (for example from India, China, Indonesia and Nigeria) before the COVID crisis. Student numbers have been rising for many years and the percentage of university-educated people has increased steadily.
The underlying structural drivers for higher education, in the long run, remain multi-layered and very supportive. As emerging market economies have evolved, there has been strong growth in higher education demand (for example from India, China, Indonesia and Nigeria) before the COVID crisis. Student numbers have been rising for many years and the percentage of university educated people has increased steadily.
As university capacities take time to build, there has been a supply constraint in the higher education market from a global perspective. Secondly, for some years now, experts have identified general trends and changes in the labour market, such as a further development towards automation and digitisation, which make tertiary education increasingly important for success in the workplace.
Lastly, students feel the need to get the best education possible to be able to compete in a globalised and competitive job market. With an increasing number of English taught programmes across Europe, they have an increasing choice in terms of destination, cost and method of study.
In addition to that, many students believe the international experience gained when studying abroad will have a positive impact on a range of skills and attributes and thus give them an edge when looking for a job after graduating.
So, while in the short-term universities will have to cope with lower international student numbers, this is most probably not a long-term development. If students can afford it, they will want to experience studying in a different city or abroad, seeking to study where they feel the best education is provided and they can gain an advantage as to their employability.
Due to the economic impact of the COVID pandemic, students are initially likely going to be more cost-sensitive with regards to their chosen place of study. Students will be tempted to study closer to home or in countries that offer a good balance of low tuition fees and affordable cost of living, while still providing good education.
The short- to mid-term impact will be stronger for universities which are more dependent on tuition fees from international students (like those in the UK and Ireland). High quality universities in countries with no or lower tuition fees for international students could benefit and increase their intake of international students.
As with universities, PBSA providers that depend highly on international students will feel a more pronounced short-term impact, while providers with a more diversified or domestic target audience will see less of an impact, even in a worst-case scenario with a high share of online-only taught courses in the coming term. Students will want to be able to make use of libraries or the chance to attend some meetings or tutoring sessions for smaller groups.
Generally, but even more so in the current situation, student housing providers will fare best in markets with an undersupply of PBSA beds. In markets with a higher supply rate and thus higher competition, there will be increased pressure on rents. As student housing is a segment close to the classic residential sector, it is positioned most effectively where the housing market is tight.
However, any impact from COVID-19 should only be limited to the short-term. We believe COVID-19 will not have a lasting negative impact on the long-term trends and underlying structural drivers for higher education, which supports the good long-term prospects for student housing.
Author: Mark Holz, Group Head of Research, CORESTATE Capital Group
 The Guardian article: “UK universities plan to create ‘social bubbles’ when campuses reopen”
 The spike in 2011 and subsequent reduction in the UK’s enrolments was due to the increase in university fees.