Is There Really a Shortage of Student Accommodation? And What Does Stacking Up Really Mean?

In this week's episode, we delve into environmental issues, student housing challenges and investment quandaries.
 
Here's a snapshot of our conversation:
 
- What does Earth Day mean to us?
- The Carbon Budget: Understanding how we can manage our carbon contributions better.
- Is there really a shortage of student accommodation? Examining the realities behind the numbers.
- What does stacking up really mean? If it is just on a spreadsheet, is that really stacking up?

Housed: The Shared Living Podcast aims to bring the latest news, views and insights to the shared living sector.

Each week, Sarah Canning, Deenie Lee of The Property Marketing Strategists and Daniel Smith of Student Housing Consultancy will be delving into a wide variety of subjects and asking the questions that aren't often asked. This podcast is for anyone who works in Student Accommodation, BTR, Co-living, Operational Real Estate or Shared Living.

Disclaimer: The views and opinions expressed in this podcast are the personal views of the individual hosts.

Transcript

SPEAKER_01: 0:00

Hello everyone and welcome to the 11th episode of How's the Shared Living podcast. I'm Sarah Panning from the Property Marketing Strategists.

SPEAKER_00: 0:08

I'm Dan Smith from Student Housing Consultancy.

SPEAKER_01: 0:11

And I'm Dini

SPEAKER_00: 0:12

Lee from the Property

SPEAKER_01: 0:12

Marketing Strategists. Well, it was Earth Day this week, so I thought we could kick off by talking about what that means to us really. It's one of those days that particularly marketeers get behind. There's lots of social posts about it. Is it just virtue signalling? Or does it really indicate something that signals change and activism? So what do you think, Deanie? What does Earth Day mean to you? I guess as a marketer, I'm probably one that veers on the side that a lot of these days are about content and not really about action, which is a slight frustration of mine. As a general rule, I'm all about being the best human you can be, whatever you do every day of the week. What about you, Dan?

SPEAKER_00: 0:55

We all know what we need to do to be better to the planet. And more sustainable in our lifestyle choices and our business choices. points that you need to be doing, then there's not a lot of point in saying we're having Earth Day or we're having National Manatee Day or whatever it might be. They're getting more spurious each year. So it's great for LinkedIn. I ignored it this year because I didn't want to be part of it in the sense of it's just another LinkedIn post. And it's another thing that people can sort of say, hey, look, look what we're doing over here. But actually, we're not really doing much at all. So great day for greenwashing not really all about the action that's that's just my uh my opinion

SPEAKER_01: 2:05

i guess my my take on it is a bit more like like deanies and i and i keep referring to what we learned at the com one conference a few weeks ago about really making it about something that people can really relate to and i feel like earth day is too big there's you're right you know who who runs it what's the tangible actions out of it so i think as a marketeer if you're trying to promote earth day It's got to have some tangible actions that mean something to the individuals within your community. Otherwise, you're just saying meaningless, vacant words, really. I had quite an interesting conversation. So my stepdaughter's studying geography and she volunteers to take river samples from our beautiful but apparently highly polluted river where we live. And the nitrates and phosphorus rates were very high in this sample. And that's really, really impactful on the ecosystem and economy. but people don't seem to care about that what they care about is our very high levels of E.coli and E.coli is actually not really harmful to animals and plants but it is to humans so the marketing message kind of locally has got to be about E.coli and the obviously it's not actually humans causing it firsthand in our river it's our sewage plant and farming but it just kind of shows you that that all of the evidence is there it's all as important but you've got to kind of dilute it to the lowest common denominator that's going to have an impact with people. And if that makes a difference to their actions and makes them more aware, then everyone wins anyway.

SPEAKER_00: 3:40

I agree. It's about the messaging. It's about how you communicate it. And I think a lot of companies, especially residential and student operators, need to be doing a better job of talking to their students or their residents about how they live and the impacts that they have. And I think that saying, you know, putting up a post saying, hey, it's National Earth Day, so turn your lights off or whatever. No, you should be feeding all the information that they need to make those decisions and lifestyle choices as they go about their daily lives and that is really really important and it's something that quite often goes amiss and listen I'm probably slightly jaded I read a really crap sustainability report thankfully no one that we've worked with but it was effectively It was effectively greenwashing. And I'm fed up of it. I'm really tired of real estate companies, in particular, greenwashing and using the wrong terminology, but also then overstating the impacts that they're having. And I think that we've got to get down to a place where we are much better at talking about our sustainability measures. I don't want to read a report if it's just going to be fluff. And I think that's where making sure that we have something tangible behind it and that there are real action points, learnings and shared learnings as well. I think that's the key thing. We've got to be able to collaborate on ESG, sustainability, CSR, whatever you want to call it, because otherwise no one's going to win. This shouldn't just be about, hey, this is our competitive edge. We've got these three key values. that we absolutely love. We're going to talk about them and this is what they mean to us. No one cares about that. They care about what the actions are out the back of it. And I think that's the real frustration that I've got and I still see is that actions aren't really underpinning a lot of the marketing that we're seeing around ESG. I can have that conversation very openly with both of you because I know how much you see ESG as a very important part of marketing. But I think some companies in our industry are endangering of really overstating their significance, the significance of their ESG policies, strategies, and results. And I think that we almost need to get back to basics and start to relearn what ESG should mean to our residents, our investors, our operators, our developers, the wider community, and just be really open and transparent about that. There's some companies really doing a good job and leading the way there. So it's certainly not everyone. But yeah, just something threw me a little bit this morning and made me more skeptical than i ever have been about these uh these marketing days should we call them

SPEAKER_01: 6:20

i guess just on that point though we spoke about systems not really being up to scratch in the sector and actually is the data really up to scratch in the sector when it comes to sustainability and and really do people know what they're tracking so therefore they can't really talk about the impact they're having because they haven't got the data to hand so therefore it does come down to just words and gestures and not real action and that seems a real step forward that we're going to have to take

SPEAKER_00: 6:44

i totally agree and i think it's something that we seen as a gap in the markets. And we're working on that. I'm not going to turn this into a shameless plug at the moment, but there's hopefully some, there'll be some future news on ESG and sustainability reporting within real estate from me personally, but we'll see how we go. If you get rubbish in, then you get rubbish out. And so I think people don't really know what data they should collect or can collect, where to collect it, how to collect it, and then how to showcase it. And that, again, that whole thing just needs to be simplified and it there will be plenty of buildings out there and operators out there that are inefficient. They're not remotely sustainable at the moment. That is fine, but there's work to do to bring them up to a certain standard. And we all have to be really open and honest about that, not just sell those properties to really kind of bring them up to scratch. I think we owe it to the next generations or the next landlord or owner or investor or whoever that might be to really make sure that we've done as much as we can with the properties that we've got. And we've been really clear on where they're up to and what we're doing. to make an impact further down the line. I think that's really on all of us. And every time I'm on a panel or whatever it might be, I've got the student housing and residential ESG panel coming up for LD events. And I'm definitely going to use that as an opportunity to really call out and say, I still don't think we're doing enough, but here's what we should be doing. So the more that we can actually break down what those actions are or what the real pain points are, that's where we'll start to see action. It's not not going to come from just looking at the fact that it's National Earth Day or, you know, Rivers Day or whatever it might be. I think that's where we've got to start thinking about tangible action, measuring the data and reporting on it really openly.

SPEAKER_01: 8:29

On that topic, one thing that we were quite intrigued by that we were talking about at this COM1 conference a few weeks ago is the process of having a carbon budget. And what that really means is everybody is quite familiar with a financial budget. You want to initiate an idea or a project in a business, you usually have to present it with a budget. Now, what if you did the same thing with a carbon budget? So for example, if you wanted to initiate a community event program in a co-living or shared living environment, you should have to provide a budget for what that's going to cost financially, but you should also have to provide a budget of what that's going to cost to the environment. And I just think it would really make people think about things like their supply chain So in that example, where would you source food from? What food are you providing? Where is it being delivered from? What is the packaging like? If you're, and I hate them, but like want to order in balloons, where are they coming from and what's the environmental impact? Because if you start adding all these things up, something like balloons, for example, you probably would draw a line through. Is that necessary? No, it's not. And then you could start being like really meticulous and thoughtful about how you're putting on your event budget. And you can do that by having a carbon budget as well. I think there's lots of different examples that you can use for that, but I think it's down to business leaders to really drive that and demand more of their team. The same as if you were changing a CRM system, if you were doing some big infrastructure change, you shouldn't just be looking at who's the best supplier, who's the best operator or the cheapest. It should be, well, what's actually the carbon impact of making that change. What do you guys think? Do you think that's something that we should start bringing in and potentially it's something that as consultants, as people that work with lots of different businesses, we could probably slip it in as part of our consultancy and try and instigate change? It's a great idea and I think what it does is it changes people's behaviours because they have to consider something and they have to consider the output and they consider what they're doing. One of my big bugbears is attachments and people send loads of attachments everywhere where they can just send a link but actually if you're tracking that and you're aware that actually your team are sending x amount of unnecessary attachments which would save you x amount of carbon footprint that means you can put that carbon budget to something else that you actually really want to do and it's those things that drive change and drive behavior and drive action so for me it seems like a no-brainer to kind of to start but it has to be company-wide and it has to start from the top and it has to be something that is delivered and you know we always talk about internal comms era it's kind of very much something that has to be part of a business objective and rolled out with training and communications and everything that everyone needs to make it work and probably the right systems to make it work. So it's not onerous for people to do this, that it's just it becomes part of that they have to do and it's easy to do and it's not adding on hours of work for them to do it.

SPEAKER_00: 11:35

Yeah, I think this is great as a concept. And I think we always get hung up on carbon in particular. And I think talking about it as an impact budget alongside a financial budget or an operations budget, whatever it might be, investment budget, whatever it might be, talking about an impact budget, I think would be great. And then you can bring in carbon, social value, et cetera, any of the other areas that you might not be thinking about because it's also bringing in waste water as well as your energy or whatever it might be. So I think that there's definitely scope to talk about an impact budget a lot better from a development and an investment standpoint alongside the IRR. You've obviously then got... So alongside your investment case and your business plan, you will effectively have certain targets that you will need to hit. And that will be that maybe you need an NPS score of X or plus 28, or that you need to make sure that you've minimized your embodied carbon in any way, shape, or form, and that your ongoing energy costs and usage is managed and it's sustainable. And I think that's where, if we can get that right and replace it with on that right, collect that data and then report on it. That's where the green premium will come in. And by green premium, I mean that every investment will then have an extra couple of percent, maybe between one and three percent at the moment added to it or taken away from it based on the sustainability credentials of that particular building, operation, company, whatever it might be. I do love the thought of that non-financial reporting and non-financial budgeting becoming a larger part of operations and investment within shared real estate. And I do think that is coming because of the prevalence of good reporting and there are more data products that are coming that can help you collect that data and then report on any kind of sustainability data. But yes, I do think that this is something that we should all be thinking about and that when you're pitching certain things, whether it be internally a specific event or a large project, that you should be looking at that non-financial impact We'd love to hear

SPEAKER_01: 13:56

from any listeners who already have that as a process and have started to implement it. But we'll certainly share any examples that we find along the way. Another topic that I was quite keen to cover today. Is there a shortage of student accommodation or is there a naïve supply? It feels like we're getting bombarded almost daily. with messages and I always think that when people talk about a shortage of student accommodation it feels like that's quite inflammatory, it's quite headline grabbing and as far as I'm concerned there aren't generally homeless students. They are all finding somewhere to live. Now we know that the numbers where data is concerned usually only counts university halls and PBSA. The numbers of HMOs are usually eliminated from it so on paper quite often it looks like there's a shortage of student accommodation in certain cities when there might not be because actually there's a number of HMOs that students can live in. We know that that number is volatile and it may well be reducing in certain cities but is it helpful to be constantly talking about a shortage of student accommodation influencing investors and developers to build which fast forward five ten years means that city probably then has an oversupply of student accommodation. Is it a helpful number is it a helpful headline that we keep referring back to I

SPEAKER_00: 15:19

think you're right we don't have the homeless students that I see or that I've seen in the likes of the Netherlands or in South Africa at the moment they have a big problem with student homelessness as well and so they must be living somewhere but part of the problem is I think we're pricing certain students out of university that may be certain internationals it may be domestic students now look I toy with how we talk about this on a daily basis and And previously, I've talked about the lack of supply in certain places like Bristol and previously Nottingham as well. And that's been a real struggle at times. It was born out of me working for marketplaces, trying to get supply on board for marketplaces to sell student beds. Well, student operators didn't need to work with marketplaces in Bristol or Nottingham two, three years ago because they would fill without them. So that was always a bit of a struggle. And that's the sort of context that I would come at that from. But talking about oversupply or saturated markets, I do have to be a little bit careful, actually, in terms of how we talk about that, because what does that mean? What does saturated or oversupplied mean? In my head, it probably means that the average occupancy for PBSA in that location is 80% or below. And I choose that number because, in my opinion, in a typical mobilization year, you should be under are writing around 85% in a reasonable market as your occupancy level, and then 100% or sort of 98% in the following year. So for anyone under 80%, I think that shows that the market is struggling in some way, shape or form, whether it be too much supply, or whether it be that the university's dropped, obviously depends on that market. But I think talking about more mature markets is probably a better way to look at it. I may start changing the terminology that I use for certain places. There's no denying that there is a glut of supply or an oversupply or a saturation in Coventry, for example. There has been in Sheffield. There has been in Liverpool or Newcastle at various different times. But a lot of this is cyclical. It will just come back round. Newcastle at the moment is extremely popular. Most PBSA is 100% occupied. HMO is 100% occupied. But back when I bought 900 beds in 2018, we were very lucky to get into the 90s in terms of our occupations. with some pretty big discounting when I was at NIDO. So it is all cyclical, but obviously it depends on the strength of the uni as to how they come through it. And after one of our recent podcasts, I was contacted by a council, a large council, saying, what the hell are you doing? Why are you saying that we're oversupplied or that we're saturated? Because we're desperate for people to build beds. And all I can do is point to that city and say, look, that's fine, but I can see that your occupancy is dropping, your prices are dropping, which which is great for students. It's definitely good for students, but for a lot of my investor clients, not so great. And so when they're asking me where they should build, I'm not going to say that specific location because I know that in a couple of years time, there will be a real problem with occupancy and you'll have to work a lot harder and have a lot bigger marketing budgets. So yeah, it's an interesting one.

SPEAKER_01: 18:37

Is there, it's part of the problem here that we're very backward thinking. Everyone's talking about what's gone on before where we are with this year and really is this question about are we really planning for the future when it comes to student accommodation we don't really plan we just seem to go into each cycle and then when it's not performing how we expected it to perform we panic and we discount whereas actually could we have foretold that actually there's lots of factors that could be impacting this cycle one cost of living one growth in apprenticeships you know one changes in international students so therefore if we were modelling Thank you. instead of thinking actually where we need to be in two years time or three years time is here because we're all these factors happening and this is where we need to be i think part of it is the the product that is generally being built is of one type and of one price which doesn't leave much much room for maneuver in the market so there's nowhere to go if something happens with the university applications or with international students there isn't really a ladder of different prices and different products. And even in some areas, I guess, because of the undersupply, HMO prices are drifting quite close to PBSA prices. So you're not even getting that swing of product and price. So even if you knew all of those things, and what can an investor or developer do? Because they have, you know, that product's already in the ground. We were going to talk today about, does it stack up? And we hear that phrase so much. And all stacking up means is, does it work on a spreadsheet? Has someone enticed an investor in based on what's on a spreadsheet? But that spreadsheet, when it comes to reality, doesn't account really for big swings. It might account for 98% occupancy in a good market. Well, it might get to 98%. But what if you've had to massively discount? Then does it stack up? Probably not. So that spreadsheet was meaningless. And when we say it stacks up, that means that the investor gets a specific return. And that can't stay stable. It can't. How can bill costs go up? How can International students go down. How can domestic students potentially decrease that need accommodation? Planning take so long and cost more, but an investor still gets the same amount of return based on a spreadsheet. It all just seems very, very unrealistic.

SPEAKER_00: 21:38

That is why the pipeline has dropped off a cliff. And that's why we're not seeing as many cranes in the sky as we previously have. You could cut islands there for various different reasons, but But I think, you know, in the UK, it's been really tricky to get the applications in and get them approved and then actually get the spades in the ground to start building because those build costs have been prohibitive. But it's not just that. It's the operational costs as well. There is not as much money as there previously was in PBSA in certain locations. And I think... Our councils in particular and our universities are very slow at opening the floodgates to private investment and private development. And for example, looking at Leeds, actually, that's probably a good idea. And I think Leeds is the city that I'm getting calls about the most at the moment, where operators are saying, what the hell is going on? Where are all our inquiries? And they're really starting to worry a little bit. The universities aren't finding it particularly easy in terms of the applications. But that's going to probably come through a bit of a cycle of, I don't know, call it saturation, call it what you want. But it might last two years. It might last four. It may be even longer than that. The good thing about that city is that there are three good universities there, at least. There's some other good institutions as well. So that will come through, I would have thought, any kind of difficulty with regards to the saturation. But it doesn't mean that Yeah, the numbers are going to stack up for investors or developers who are putting spades in the ground now. It also doesn't mean that there is that shortage, that we actually need that stock right now, because we've built so much of that mid to high range stock in terms of studios, in particular for Chinese students when the numbers were great. And the sort of mid-range ensuite rooms as well, we've built a lot of those. We've ignored the affordable stock and thought the universities would take care of that pretty much, or a few operators here and there. And it just means that, yes, without doubt, there are cities where a certain room type there is a saturation point. And that might be a 13 meter squared en suite priced at about 225 a week or whatever it might be. But there will definitely be certain saturation points. And I don't think, I think developers have been running scared for quite some time post COVID. with changing things up and really doing things differently. But they've also been a bit scared about just getting spades in the ground anyway. It's been pretty difficult with all of the relevant things that you've talked about there, Sarah, and the land costs and everything like that. So all in all, tricky to be a developer right now, tricky to be an investor and to make those numbers stack up without building the premium stock. A lot of those studio developments, when you look at the en suites and how they're built as well. The price in terms of how you develop and the value that you apportion to it, it's pretty equivalent in terms of studios taking a certain amount of meters squared well actually then you've got the en-suites plus then the corridor space plus then the cluster kitchens etc so i think the gap is closing between studios and and en-suites in terms of you know costs etc development costs ultimately it's just a really tricky space to be in if you are a developer or an investor at the moment given how easy it was to make really stellar returns not less than sort of three years ago

SPEAKER_01: 25:22

is that the point that actually it stacks up to build studios because you make a better return not that if you build on suites or a more affordable product you still get a profit you just don't make the same return like are people saying it doesn't stack up it doesn't work you can't build it and set it for that for the price you can set it for and it won't make a profit or it will make a profit but it's not a big enough profit i think that's kind of my my point really is i always think that if you build an affordable product that's aimed at a domestic market, you can't go wrong. There's always, you're never going to not have demand for a good quality, affordable product for domestic students in this country. You know, we have a proven university industry that's been going for hundreds and hundreds of years. That's not going to change. So surely that would, over a long time, stack up, in inverted commas, better because it would be full. And there's less marketing cost probably because you wouldn't need to discount and you wouldn't need to because it would have a good reputation and a good product. And to your point, yes, there was probably be less profit in it, but there would still be profit in it. But over a long period, longer period of time that's much less risky and you know with the potential of having to convert things or apply for change of use you wouldn't have to do that if you're going with the safe bet that is, I just think, domestic students on a budget. This is a topic that we've talked loads about and I'm sure we will continue to talk about. It's really interesting and we're coming up to conference season and this will raise its head again and again. So let's leave it there for this episode. We'll come back to it. And like we said, there'll probably be panel discussions to analyse from conferences. So yeah, in the meantime, thank you all for listening to this episode. This is all about all our We really enjoy talking about it and we really, really are grateful for the feedback and the comments and the reviews that we get from you all. So please share and subscribe to it and make sure that people in your network are aware of it because we're really keen that people of all levels that work within the shared living industry are party to conversations like this. So thanks again and we'll catch you soon for episode 12.