The pre-pandemic picture

In recent years, students have been moving around the world more than ever before. In 2017, over five million students studied abroad, according to figures from UNESCO. A large proportion of these globally mobile students are from the Far East. China is the largest source market, but an increasing number come from India, which has seen faster growth in outbound students as the country’s wealth has increased.

Greater international student mobility has gone hand-in-hand with a growing, global, purpose-built student accommodation (PBSA) market. International students have contributed significantly to the success of this sector. Unfamiliar with local housing markets and often possessing greater budgets than domestic students, they have acted as an important and growing demand base.

Investment volumes in the sector have grown considerably in recent years, increasing 135% between 2014 and 2019.

University degrees from English-speaking countries are highly desirable for international students and so Anglophone markets tend to be the most attractive destinations. The US is the largest inbound market for international students, followed by the UK.

Australia has also seen fast growth in recent years, benefiting from its proximity to major source markets such as China and boasting attractive post-study employment rights. The latest data shows that international student enrolment in Australia increased by 21% between 2017 and 2019, compared with 10% in the UK (between the 2016/17 and 2018/2019 academic year).

Attracting international students has helped universities, particularly in the UK and the US where the student-age population has declined, making up for a natural fall in domestic enrolment. International students also make a significant economic contribution, often paying higher tuition fees than domestic students. In the UK for example, the Institute for Fiscal Studies estimates that international students made up 37% of total fee income for UK universities for the 2018/19 academic year, despite accounting for only 20% of students. This has made the competition amongst universities to attract international students greater than ever before.

What has Covid-19 meant for universities?

When the pandemic first hit, many universities were forced to close their campuses to prevent the spread of Covid-19. Any students unable to travel home were restricted to their accommodation and lectures were shifted online. With the new academic year now underway, universities, students and accommodation providers alike, are adapting.

The real impact on student numbers will not be known for some time. Early indicators suggest there is likely to be a moderate fall and given the current travel and social restrictions in many countries, this would not be a surprise.

In a survey by QS in September 2020, 69% of respondents stated that Covid-19 had impacted their plans to study abroad. The majority of these (57%) said they planned to defer their entry until next year.

Visa data also gives us an indication of how student mobility has been impacted. In the US, consulates stopped issuing all visas in late March and the number of student visas issued consequently fell dramatically (see chart). Visa issuance resumed again in July but the number of student visas issued remained well below the same month in 2019 and annual figures are likely to remain below 2019. Data from Australia tells a similar story.

Focus on Europe

Some early signs here are more positive. In the UK, the latest data from UCAS shows that applications from non- EU international students for September 2020 rose 9.6% compared with 2019. The number of EU student applications fell by only 2%, in spite of Brexit-related uncertainty.

In France, initial data also does not suggest a significant drop. According to the Ministry of Education, around 90,000 international students have submitted applications for the 2020/21 academic year compared with 100,000 last year. The deadline for applications was extended to 15th October.

The UK, and other European countries, could benefit as other countries have taken a tougher stance on international students. In Australia, all international arrivals were banned in March, virtually bringing to a halt the flow of international students, but has begun to bring international students back with the help of state government led programmes.

The US initially proposed removing visas for students taking their entire course online. This was reversed later (a similar decision has been imposed in Germany for new students, but not existing ones). At the same time, some universities in the UK chartered flights to bring international students over, highlighting how valued they are and making the UK appear more welcoming. Political tensions could see the US fall out of favour with Chinese students, potentially benefiting the UK and other European countries. In September 2019, the UK Government changed the law to allow international students to remain in the UK for two years after graduating, up from just four months previously. The UK now has one of the most generous post-study work visa systems in the world.

Domestic enrolment

The pandemic halted school exams and students in some countries were given centre assessed (or similar) grades. In the UK, this left a larger than usual proportion of school leavers with the grades needed for university, and the number of 18-year olds going into higher education increased by 5% compared with 2019. In France, the entry success rate jumped to 95.7% in 2020, from 88% in 2019. Student enrolment is expected to increase 2.1% from last year.

Initial figures do give us some indication, but these numbers are not final and the actual number of students who turn up or drop out will not be known for some time. The university experience will be different this year, which may influence students to defer their studies. For international students, travel restrictions and risks of further waves of the virus will also hinder arrivals.

Implications for PBSA

International students are an important source of demand, so a fall in arrivals could create challenges for some PBSA providers - particularly those at the premium end of the market where affordability is a greater concern.

Initial signs from Europe are mixed. Markets where there is a lack of supply of good quality PBSA have proved resilient. In the Netherlands, many long-stay providers are still fully booked, such as Our Domain in Amsterdam for instance.

In Germany, the Deutsches Studentenwerk, with 194,000 beds, is the largest (non-profit) operator of PBSA in Germany. In July, it announced that its vacancy rates were between 5% and 10%. Tenants often have semester contracts. The company is expecting further occupancy problems for the winter term. For context, Studentenwerk usually announce that they are fully occupied.

When a non-profit operator like the Studentenwerk expects occupancy problems, we can assume similar or even higher risks for the private PBSA sector, which targets international students and has higher price points. The Student Hotel in Dresden, for example, has closed for an indefinite period due to the pandemic. In Spain, PBSA providers are seeing pre-bookings at around 60-70% of the levels from September 2019.

In the UK, The Unite Group’s Q3 2020 results showed a modest hit from Covid-19. 88% of beds were let across their portfolio, compared with 98% at the same point last year. Unite also reported that rental income was down by 10-20% compared with 2019/20.

One factor that has underpinned the sector is the undersupply of student beds across Europe. In Germany and France, for example, provision rates (defined as the number of beds to students) stand at around 12% and 16% respectively, but are even lower in some cities.

Schemes located in cities where provision is the lowest should prove the most resilient over the coming year (or more), and any rise in domestic enrolment should help sustain occupancy levels in these locations.

The shift to online

A survey by Universities UK found that 97% of UK universities planned to provide some in-person teaching in 2020/21. Universities will, however, have to adapt to the new reality, which means a greater online presence than before. A survey by QS in September 2020 found that just over half (51%) of respondents stated their course was being taught entirely online.

Students may not feel the need to move into student residences if most or all of their course is online. Those who are within commuting distance may decide that travelling in once or twice a week is now the more logical solution, especially as the experience within student residences will be different.

Some countries have taken a tough stance on issuing visas for international students whose courses have shifted online. For some international students, taking an online course from another country may not be realistic, due to difficulties such as time differences and access to adequate internet.

For those who do manage to travel, the likelihood is that more of their study will be done from their residences than in previous years. For PBSA providers, ensuring their residents can stay connected will be vital, as well as providing adequate space to study.

More than just learning will shift online. The important social element of the university experience will also have to adapt. Networking, sports clubs and other societies will have to host at least some events online too. For example, e-sports offerings at some universities in the US, such as Brown University and MIT, have increased since the pandemic, with popular games like League of Legends seeing increased take-up. This was an emerging trend prior to the pandemic, but will now be accelerated globally. Online socialising may be a solution for now, but long term, it can’t replicate the life experience that traditional university living provides.

The flight to quality

A big question for many students will be whether a partly online course is still worth the same fees. This may depend on the university in question. The University of Cambridge has said that it will offer lectures online for the entire 2020-21 academic year. Smaller teaching groups will still be held in person, as long as social distancing requirements are met.

As one of the highest-ranked universities in the world, people will likely still see value in a Cambridge degree, even if it is mostly online. For mainly online courses to be viewed as valuable, universities may need to re-think their teaching model. Online lectures could be engaging if they are a high-quality and interactive experience.

In the UK, centre-assessed grades created a rise in interest for higher-ranked universities as students received better grades, but lower-tier institutions saw little change.

The universities with the strongest finances will be more resilient during this time. Smaller, lower-ranked universities may feel the burden more. Even more so if they were already struggling prior to the pandemic. Universities that have become dependent on international students may also feel a greater burden. Chinese students were estimated to make up just under a quarter of the total last year at the University of Sydney, for example.

Price sensitivity

In a weaker global economic environment, universities which offer value could be favoured. Assuming international students can make the journey, markets such as Germany and France, where fees are lower, could benefit. There is a smaller choice of highly-ranked universities however, than in the US or the UK. Neither Germany nor France has an institution ranked higher than 50th in the QS World University Rankings 2021. PBSA located near higher-ranked universities with competitive fees could prove particularly resilient.

Locations which offer good-value accommodation could also benefit, should students weigh up the advantages against the costs of relocating in this increasingly online world. Mainland European markets with a combination of low tuition fees and accommodation costs could become more attractive to cost-conscious globally mobile students.

Looking ahead

Is this just another downturn? During previous economic slumps, higher education enrolment has proven countercyclical. When job prospects are weaker, people are inclined to use the time to upskill and hence enter higher education (see chart, below).

Early indications from 2020 enrolment figures suggest resilience. In normal times, a rise in student enrolment should create increased occupier demand for PBSA. But, current travel restrictions may hinder international arrivals, an important occupier group.

In the near term, the university experience will be different. With more online teaching and less opportunity for socialising in person, value for money matters more than ever. Higher-tier universities are likely to fare better as a result. Well-regarded institutions in mainland European markets, where tuition fees are low, may also benefit.

_{Read the articles within Report: Global Living – 2020 below.}