What does the future look like for investors, developers and operators?, UKREiiF, Investors vs customers, The amenities arms race and The MAC Report

In this week's episode, we discuss:
☑️ LD Event-  what does the future look like for investors, developers and operators?
☑️ UKREiiF – the inside scoop
☑️ Investors vs customers – who should win?
☑️ The amenities arms race
☑️ The MAC Report – relief but has the damage been done?

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_02: 0:00

Hello everyone and welcome to episode 15 of How's the Shared Living podcast with me Dan Smith from Student Housing Consultancy,

SPEAKER_01: 0:07

me Sarah Canning from the Property Marketing Strategists and me Deanie Lee from the Property Marketing Strategists.

SPEAKER_02: 0:14

Now, Sarah and Dini are coming to us live from Leeds, from UK Reef. And I know that some of the feedback that we've had from speaking to people at events about the podcast has been overwhelmingly positive, which we're very grateful for, of course. But I think you want us to speak a little bit less about what we're working on, which is fair enough. So without further ado, let's get into it. We have been to several events recently. Obviously, Sarah and Dini are at UK Reef. I'm not up there with them, but I was at the LD events ES residential conference last week and Sarah I know that you were at the LD events student housing conference last week so how was that?

SPEAKER_01: 0:52

Firstly it was huge I think it must have been their highest attended event I think it was their 15th one and it was absolutely packed it was in a bigger venue than it has been previously which just shows the kind of appetite for things relating to student housing student accommodation PBSA. I'd say it was largely an investor audience, but a lot of operators as well. There was a lot of data being shared. The morning was quite overwhelming, really, with the amount of data being shared. But I think the overall kind of message was that the long term view of the sector from an asset class point of view, from an investment point of view is very positive. There's kind of no concerns about it. But in the short term, it does look like this year is going to be challenging. Certain markets had gone very heavy with rent increases. But anecdotally, we know that there are many that went higher than the average. So I was quite grateful that it was honest. It wasn't just kind of appeasing investor ears, which you quite often get at events like that. There was a balance. It was long-term great, short-term act with caution. But also, I think there was actually a lot of emphasis on the lack of affordable student accommodation, there was no real golden bullets about how to solve that, but it was thrown out there.

SPEAKER_02: 2:07

I don't think that anyone's really looking at that affordable piece well enough, to be honest with you. From an investment standpoint, it's very difficult to make that stack up. We've covered that in previous episodes about making the numbers stack up. Overall, the fundamentals for PBSA in the UK in particular still look really good, really positive, not just on a domestic standpoint, but an international student standpoint as well, in spite of what the a little bit later. In terms of those prices and the rent increases, I do think that some locations have definitely overcooked it. And some operators have pushed their prices too high, whether it be operators or investors pulling the strings there. And I do think there's going to be quite a lot of discounting later on, even in strong markets, not just because the pipeline's improving in places like Bristol and Nottingham and Leeds and wherever, or Glasgow, but because I think that we are in danger of pricing students out of university in some of those cities so you know there's a lot to be said for those rent increases having obviously a negative effect on whether students actually decide to study in those cities purely because it is becoming unaffordable for students to go to university in some locations.

SPEAKER_01: 3:23

One of my favourite sessions was from Student Crowd and it was really interesting looking at their graph of kind of customer satisfaction segmented by product and price point. And it showed that any student that is living in the more affordable end of the market has kind of disproportionately good satisfaction. Those that are living really high end have got great satisfaction as well. And then in the middle, it dips. And Thule was able to kind of explain this further. And her analysis of it is that actually, if you're living in cheap student accommodation, it doesn't take much to exceed your expectations And we know that the market is doing great things with customer service and kind of the front of house operational provision. So it's not surprising, really, that if you have cheap accommodation, your operator can probably punch above their weights from that respect. So people are really satisfied. You then go to the really high end stuff, which I'm assuming is like beta and chapter and again you're paying big bucks and they're generally really satisfied with it because they'll be getting the red carpet treatment the dip in the middle is really people that probably would be in the cheaper end of the market but there just isn't any product available so they're pushing themselves financially into this very congested mid-market range of student accommodation and the front of house teams I think are struggling to keep up with the very high expectations because you might think well we're mid-market it's you know£200 a week but my god that's£200 a week that's really expensive and those students have sacrificed things they're pushing themselves they're working probably 20 hours a week as we demonstrated in our recent research so their expectations are really really high and operators are just not meeting the expectations so that's where the lowest satisfaction is interestingly.

SPEAKER_02: 5:10

So there's a real value gap in that mid-range section for PBSA that ultimately we need to address because students currently it feels like they're begrudgingly paying for a mid-range, I would say average product in certain properties in particular. It's not just one operator that is feeling that or delivering that. I think there's certainly a lot to be said for those students needing more of a value and that satisfaction will be lower in those mid-ranges if they're stretching themselves on price point, but not getting the service or the amenities or the quality of room. And that is really tough on those property managers, the general managers and the site teams to actually manage that, to manage expectations when the prices are so high. And I do think we've made a bit of a rod for our own backs. It wouldn't surprise me to see some of this student sentiment drop in the coming years as the prices have increased and the service levels maybe have dropped slightly. And yeah, it's for the Keck skills or a UPP or U Living, for example, anyone playing in the more affordable end of the market, great. Ultimately, you are going to satisfy those students because Their expectations are slightly lower. For the Vitas and the Chapters, as you said, it's great for them as well. We know how good the service that they deliver is, and the students expect that. They pay top dollar. They are going to expect quality amenities, great room, well-appointed, loads of tech, good services, really well looked after. So yeah, real value gap in the middle, as far as I can see at the moment. And I think that's where there's a lot of opportunity in the Although I'm not sure quite how much, I think it's more location-based now rather than needing numerous more operators or numerous more premium high-end buildings. But the slight concern is that obviously this year, the Russell Group are saying there's going to be probably 10% less international students, which could have been, of course, a lot worse with the Mac review, which as I've said, we'll come to in a second. So yeah, lots of work to do there for mid-range operators. Dini, I know that you guys are at UK Reef. How's your first day been?

SPEAKER_00: 7:20

Yeah it was good we did day one yesterday we unfortunately because we traveled up in the morning we didn't turn up until till midday and I think in hindsight that was a mistake because it's a big event it's a sprawling event there's lots of different tents and while we were trying to navigate it and find our feet we were bumping into people we knew and we kind of felt a bit on the back foot really so I think that's our first lesson is if you're going to come get here for day one and be here for day one when everyone's trying to navigate it and find it and not be on the back foot. We headed straight over to the second the PBSA session that we helped curate, which we were very, as you know, we're always very pro getting students on these panels to talk about their experiences. So we helped with the help of University of Leeds and Rebecca O'Hare get Tom onto this panel to talk about his experience living in student accommodation. Unfortunately, we couldn't hear all the great things that Tom said because so many people wanted to go to this talk that was in a small venue that we couldn't get him. So great news that actually in this event that all about real estate and infrastructure that actually there is a lot of interest in pvsa and actually maybe the organizers had read that wrong because both the sessions we went to on pvsa were in quite small small tents and both were quite full so there's obviously a lot of interest in the sector which is good for the sector so we could have done with a bit more space but i think the session went down well i think tom did really well like really eloquently and great that there's a student voice here which is good the second session we attended was on exactly what we were just talking about, about service provision and how kind of PBSA needs to keep up. The people that were on that session was Kelly Ann from the Glass Foundation, Gabby Rhodes, who's the new marketing manager for Mojo, previously Vita, Jamie Harris from Harris Associates and Kato Neal from the Living Sectors. Really interesting panel, you know, a lot of discussions around kind of where the sector is on affordability and all those things. Shout out to Kelly Ann for keeping the message going that we need to build more and we need product diversity and there was a bit of a debate around viability and actually kind of Jamie and Katie were kind of saying that it's only studios that are viable to build because of all the pressures we know on costs and build but I guess my further question there is if all the data coming at us is saying that people don't want studios they're looking for a certain price range are they going to still be viable if they're not full they're only viable if they're full so I guess for me there's there's more of discussion there to be had on viable on a spreadsheet is based on you selling it out. And if you're not selling it, it's no longer viable. There are challenges. We know there are challenges. There's already great discussion on that. There's still more to do. And it's great to have Kellyanne there to give us the European viewpoint as well. And actually one of the other things that came out of that session was this collaboration piece. And there's still so much more collaboration going on with local authorities, universities, private sector to solve some of these problems where we're still a bit behind the curve. So there is more to be done. with that?

SPEAKER_02: 10:20

I don't fully subscribe studios being the only viable product anymore. And I've spoken to a few developers about that and architect. And I think there's some clever things that can be done with clusters. And we need to be thinking about twins and non-on-suites and that product that ultimately gives us a variation because we've just talked about the fact that there is a real value gap in the middle, which is typically going to be a certain percentage of studios and clusters. But we need to get smarter about what we're building and build for the future and that future looks like it needs to be affordable and right now it's not and i think we've built studios primarily for the chinese market that's worked but you know as that dip what's the next step like how do we make sure that we can future proof the viability of the operations not just the viability of the development so you can get funding and that's where i think we're we're missing a trick with just being a bit smarter about the design and the layouts and asking students what they actually want rather than just well i'm not sure I can get funding for this, so let me just stick in another 60 studios. That's really something that we need to get better at as a sector, I think.

SPEAKER_01: 11:27

We had a really interesting conversation with a developer whilst we were outside the session that we couldn't get in. So we were still having on-topic conversations, although not within the talk that we aim to be at. And it was about gyms, actually. And this came up in the later session as well with Moda. And this developer basically said, investors expect to see a gym when something is being proposed to them because they think that that equals a particular value and they can ask a particular rent if a property's got a gym now from our own research we know that it's about 50 50 students that want gym and students that don't want a gym we did a focus group with a client a few weeks ago with the students in their building because they were about to embark on some capex work quite rightly they wanted to find out what the students wanted and this building had a gym so we we delved a little bit deeper and the students said we do want a gym because at the moment we're spending 20 pound a month down the road on a public gym and I was like well why is that you've got a gym here and they said it's too small we can't use it if you've got two people in it it feels full it hasn't got a bench it hasn't got the equipment we want if it was double the size would you use it and they said yes we would use it and we would cancel our membership down the road and then when we were in the motor discussion they were saying that depending on where you are if you're in a city centre location you should be using the community facilities rather than having your own because actually it brings a lot more you know people are getting out into the the community they're meeting lots of different people it's a completely different experience to just being in a gym in your own building and that's a really good example of all of these conflicting things you know the students want a gym but they want a really really good gym the you know, the cost of it is quite high. So people are putting in really, really small, not very good gyms just to say that they've got a gym. So the investor says, oh, great, you've got a gym. I'm going to back that. And it's this weird, vicious cycle where nobody's really getting what they need out of that situation. And if you multiply that by cinema rooms, key rooms, roof terraces, it's a bit of a mess. It's a bit of a conflict of who wants what. And I think the point that we had with this developer is he'd love to develop more cheaper accommodation. He said the communal facilities don't necessarily cost a huge amount it's it's the rooms that cost the money but once these big fancy communal spaces are in you have to charge a certain amount of rent for them so you know we'd love to dissect this more and really kind of get to the the bottom of this and what why where can investors learn better where can they be educated on really what is needed because otherwise we're just having a homogenization and you know that middle part of the market is really crowded all full of the same product so the students just don't have a choice at the moment and people are wasting their time and money building stuff that students don't want. I

SPEAKER_00: 14:03

do think as well that the Building Safety Act, and this came up yesterday in discussions, is playing into this argument really, because we were speaking to a developer who was saying that actually under the Building Safety Act, you can only have 100 square metres of open space before you've got to have commercial sprinklers. So therefore, those wide open spaces are not going to be viable anymore because they can't meet the safety regulations. So actually, it all seems to be coming to a way that actually what we're arguing is let's have some flexibles spaces but less communal spaces and then more rooms that boost your revenue so i think we all need to come come back to this drawing board and i think and as we always say someone needs to be brave there's a massive opportunity there for that kind of mid to lower range product because there's a massive market for it and we just need someone to be brave and we'd love to work with that person

SPEAKER_01: 14:49

i don't think it's that brave building something that people actually want yeah

SPEAKER_02: 14:53

but keep keep pushing that agenda at uk reef it sounds like a bit of an antidote to nip him uk reef in that sounds like glastonbury whereby you've got a loads of different stages and you can you know find a have a nice little discovery of something new and then learn something on another stage or whatever it might be but loads of people up there i'm seeing it all over linkedin which is which is great so well done to nathan and the team for coordinating all of that it sounds like it's obviously it's obviously quite sprawling how are you managing to get to each of the the sessions that you might need are you having to plan it out carefully

SPEAKER_00: 15:26

this is our debate right now is do you just go as you say i think glass debris is a great example and description of what it's like. And I think we're in the kind of throes of going where it takes us, seeing what we find. And one thing I will say is it feels really, really inclusive. It feels really diverse. There's lots of women here. It feels a very safe and friendly environment.

SPEAKER_02: 15:48

So it's not just real estate bros in blue suits then?

SPEAKER_00: 15:51

It's not, no. And yeah, it's been a really, really great vibe. And I think we're really looking forward to day two, getting going and seeing where it takes us. I mean, the only thing I will say from a sustainability point of view, that the programme is a massive big book and I don't know what it's cost them to make it because I know how much it costs to make those books and they're all going to be, you know, just bins at the end of it. So we are desperately seeking an app which is easier to digest all the stuff that's going on. But yeah, it was a really good first day and we're looking forward to day two and definitely feels inclusive and diverse, which is always nice to see.

SPEAKER_02: 16:25

Well, event season has well and truly kicked off and LD events is normally the first one, the student housing event. Then straight after that is the LD ESG residential events. And that's a really good event for about 300 or so people. Some of them are ESG and sustainability specialists. Some of them are just operators and investors, developers, really, really refreshing. So I didn't go to the LD student housing event, but I was on a panel at the ESG event and it was really informative. It wasn't just a standard, what does ESG mean for PBSA or BTR or any of the residential sector. It was very much, how can you take the learnings and the data and apply actions and make sure that you're actually providing results? And I think that's where we're moving to now. We're not just thinking, all right, well, let's look at what certifications do we need? It's very much, how do we actually move the needle in terms of making sure that we can show that there is potentially a green premium to be had in operations by putting in place sustainable tech or sustainability measures, ESG measures? How do we show show social value. And, you know, social value is quite difficult to quantify. Typically, it's a bit more about the storytelling piece. Well, that's fine. What do investors want to see? So that's what we were asking on the stage, trying to understand what investors want to see, but mainly what the end user wants to see. What does the resident want to see and how can we impact them positively? So really good event. Lots of the right people in the operators, developers, investors, finance, plenty of banks there as well. And I think that Andrew and the team at LD did a really good job of curating that. It was a full event as well, which is great. Last year was almost full. This year was definitely full, 300 and something people. And I think that that is a sign of things to come. They'll probably have to move venue at some point fairly soon because we're almost out of capacity. The more people start talking about ESG, the better. I'm conscious that I'm conscious not to talk about it too much on this podcast because inevitably the engagement drops whenever you talk about ESG or sustainability. But I think it's a really important one for people to think about next year in particular. And there's some more events coming up fairly soon. But yeah, event season has well and truly kicked off. Moving on swiftly to a topic that I think everybody is going to be wanting us to comment on and wanting to hear about is the Migrations Advisory Committee. Thank you very much. And the editor and the author of the report is a professor at LSE, very, very independent. And the government did fair play, just leave him to it. And he came back and said, categorically, international students are beneficial to the UK, do not touch the graduate route. Obviously, the last time we did that, Theresa May dropped the graduate route, the amount of time a graduate is permitted to stay in the UK, an international student post graduation, from two years to six months or and we saw a 50% drop-off in Indian students in particular. China plateaued, drop-offs in every other nationality as well from abroad. It was really positive to see that result come out of the report. The government then bided their time a little bit. And then just this morning, we saw a report come from the Financial Times, but also now from Sky, from the Telegraph, from the Times, various other locations too, various other news outlets too, saying that Rishi Su was not going to take any further action. And so the graduate route will stay intact, at least for this intake. I think everybody was a bit concerned that they might just throw the baby out of the bathwater and that they might reduce the graduate route immediately, which would massively impact September intakes, or just fold it into a manifesto commitment. They may well do that now, who knows. But either way, really positive result from the report and really positive that the government are not looking to take any further action on that. I do actually think that we have, bizarrely, David Cameron to thank for that as well. I mean, he's a foreign minister, and therefore it does, I suppose, in some kind of way have something to do with the UK and obviously the international students coming from abroad. Therefore, that's why he's been involved. But given that we've got him to thank for Brexit, ultimately, it's great that he managed to step in with some of his other colleagues in the and stop Rishi Sunak taking any further measures on the graduate route. Has made Rishi Sunak look pretty weak, to be completely honest, but really positive overall that we've managed to curtail any negative response there. Sarah and Dini, I know that you've picked that up. And Sarah, you've listened to the News Agents podcast this morning. What was your take on it?

SPEAKER_01: 21:44

Well, I was really glad that they're covering it, actually, which just shows how important it is to national policy. I was really interested with their comparison. They were talking about the fact that Rishi himself at studied abroad and so did his wife. So it seems quite bizarre that he hasn't sort of related his own positive experience to that and what the students that come here get. There was a lot of talk about how he had wanted to select the brightest and the best students. So he wasn't necessarily curtailing the student visa route altogether, but he wanted to select the students that were coming here. And the counter argument to that is, you know, a university fee is a university fee. And if we're talking about universities staying afloat or not staying afloat, does it really matter who's paying to be here or not? And arguably, the students that are coming here that are spending such amount of money are making such an enormous sacrifice to be in the UK anyway. Is it right to select people that have made so much sacrifice to be here, to want a better education, to spend their money in the UK, to contribute to our economy and potentially work here for two years after they finish their degree And in a lot of cases, they're contributing to research. They're contributing to the medical industry. They're doing great things that arguably other people aren't doing. So it would leave a massive, massive hole overall. And the news agents did talk about it quite eloquently.

SPEAKER_02: 23:12

It was really interesting to hear the VC from York University just give a bit of a rounded view on why it's so important that we have international students in the UK. Yes, they're beneficial for the economy. We do want the brightest and the best, of course. But equally, every has a right to education and I don't see any reason why the UK shouldn't be a destination for international students looking to further their education and better their employment prospects and I think that the way we've got things now with the graduate route and the two-year permission to stay post-graduation I think there's madness that we are including the international students in the net migration figure and the Conservatives would have saved themselves a lot of hassle by just removing that, you know, removing the international student number from the net migration figure. And then you really just have to worry about the small boats or the flights to Rwanda or whatever other mad policy that you want to put in place to appease the right wing of the Conservative Party. So I think that the report was right. The response so far has been right. And I just think that we've got so much to give in the UK from an international perspective, not just to Chinese students or Indian students, but to national from all over the world. We have industry-leading universities in terms of research across the board, across the UK, from right up in Aberdeen down to Southampton or Falmouth. We are industry leaders and world leaders across the board for international education. So I do think that this was definitely the right response. And I am genuinely grateful to some of those cabinet members, James Cleverley, Gillian Keegan and David Cameron for talking sense into Rishi Sunak ultimately because I do think he was prepared to just throw the baby out with the bathwater I keep using that phrase but that's what it felt like they were going to do just cap international student numbers and then you could show by the election that if your election's held in October or November that those visa figures and therefore the international student numbers have dropped off a cliff because a lot of the agents in the marketplaces that I was talking to they were suggesting that it could be anywhere between 20 and 40% drop-off in international students in this year alone. Now, for us already to be facing, according to the Russell Group, a 10% drop in international students for various different reasons, partly because some of them were afraid about the response to the Mac report, and some of them are finding university too expensive in the UK at the moment. It doesn't mean that they can afford it anywhere else at the minute, but I think we're putting some people off with the cost of university right now. But the government have a lot of work to do, and the next government have even more work to do you know how do you solve a problem like tuition fees not being able to pay for domestic students to go to university given that every university is making between a sort of three and a half and four and a half thousand pound loss on every domestic student that's where the international students come in they are propping up our higher education sector

SPEAKER_00: 26:12

yeah and i think ultimately it was a no-brainer it's like you've got a report that basically explains all those benefits that international students bring to kind of go against that would have would have stank of desperation it was just just about winning votes and so I think Conservatives are at rock bottom and it would have been a total disaster if Fed's permission to do that and I'm glad that thankfully he's been able to see sense and yet thanks to David Cameron which is not something I thought I'd say. My only question really now is like you're saying there's already this view of it's expensive to come here and study and actually what has the damage done to our reputation of all that going on and are our students feeling welcome here so there's probably a communication piece to kind of build that back up to say it's okay it's It's all good. Like you say, I think the new incoming government have a lot of things to fix. One of the things that is coming up time and time again at UK Reef is planning. Planning needs to be fixed. And obviously there needs to be an overhaul of the education system and how it's funded because it's not working. Whether they're going to fix it, who knows whether they can fix it, whether there's money to fix it, whether there's a will to fix it. We will wait with bated breath. But I think this is a good day. I'm glad the right decision is made because it is clearly the right decision for anyone that understands the sector can see.

SPEAKER_02: 27:27

Without a doubt. And I think just a bit of an appeal to international education agents and marketplaces. And we see you listening to the podcast and I'm very grateful from India, Nigeria, China, we do see you. So do please get your students to book and book as early as possible. I do think, yes, there are going to be some incentives a little bit later on for student accommodation in particular, but the UK is very much open for business when it comes to higher education now I think that the government have shown that they're not willing to sacrifice higher education in order to gain votes and that was what everybody was waiting for so that feels like the pivotal moment to really push your students to book their accommodation and to book their place at university fingers crossed that that all comes through and on that note I think that is it for today we hope you've enjoyed this episode and we look forward to seeing you again and for episode 16.