In a significant shift prompted by dwindling international student numbers, Unite Group, the UK’s largest student accommodation provider, has announced reductions in rents and tenancy terms at several locations, including Bristol. This decision comes as the company revises its profit forecasts for the third time in just four months, indicating a challenging landscape for the sector.
Declining International Applications Impacting Student Housing
Unite Group’s challenges reflect a broader decline in the number of international students enrolling in UK universities. Reports indicate a 6% drop in international postgraduate applicants this September, marking the second consecutive year of decline. The company’s shares have reacted negatively, plummeting nearly 10% to their lowest levels since early 2015. As a result, Unite has decided to halt any new construction projects following the completion of its first build-to-rent initiative in Stratford, which will deliver 719 beds by June.
With only 68% of available accommodation booked for the upcoming academic year, Unite is now concentrating on student housing near “high tariff universities,” which demand higher A-level grades and UCAS points for admission. This strategic pivot aims to bolster occupancy rates in an increasingly competitive market.
Strategic Disposals and Cost-Cutting Measures
In an effort to streamline operations, Unite is accelerating its asset disposals. Recently, the company announced the sale of its St Pancras Way property, a 571-bed accommodation in London, to the Unite UK Student Accommodation Fund—a joint venture with Singapore’s sovereign wealth fund, GIC—for £186 million. This sale is part of a broader strategy, with Unite aiming to generate between £300 million and £400 million from property sales annually.
Karan Khanna, Chief Operating Officer at Unite, highlighted the most significant challenges in cities such as Nottingham, Leicester, and Sheffield, where the company has opted to reduce both rent prices and the length of tenancies from 51 weeks to 44 weeks. In cities like Bristol and Edinburgh, where rental prices start at £250 per week, similar adjustments have been made.
Future Outlook and Market Adjustments
Despite these difficulties, Unite’s leadership remains optimistic about the long-term appeal of UK higher education on a global scale. Chief Executive Joe Lister stated, “We should be focusing on those high tariff universities; we have seen changes in the marketplace coming from the move to more students staying at home and the fall in international postgraduates, and repositioning the portfolio will take some time.”
The company has recently expanded its portfolio by acquiring Empiric Student Property, adding 7,700 beds across 68 buildings in 22 cities. However, expectations for the upcoming academic year have been adjusted, with occupancy and rental growth anticipated to remain at the lower end of previous forecasts. Unite now projects a growth range of 93%-96% for occupancy and 2%-3% for rental growth, down from earlier estimates of 0%-4% and 0%-2%, respectively.
Challenges Ahead for Unite Group
Analysts are closely monitoring Unite’s trajectory, with Peel Hunt’s Matthew Saperia noting the considerable challenges the company faces in regaining growth. The recent increase in purpose-built student housing supply has also not fully recovered to pre-pandemic levels, further complicating the situation for Unite.
Looking ahead, Unite has deferred a £147 million project in Paddington and is reconsidering plans for another 500-bed project in Bristol. The company is evaluating all options regarding its land holdings, which could accommodate an additional 2,400 beds, including potential sales or joint ventures.
Why it Matters
The situation facing Unite Group is indicative of broader trends affecting the UK’s higher education landscape and the student housing market. As international student enrolment continues to decline, the repercussions are felt across the sector, impacting not just accommodation providers but also universities reliant on diverse student bodies for financial stability. The decisions made by Unite in the coming months will be crucial in determining its future viability, as well as shaping the student housing market’s response to evolving demands.
