Select Property Group Research
UK STUDENT ACCOMMODATION RESEARCH
NEWCASTLE
2014
Select Property Group | Newcastle Research Document
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BY GILES BESWICK
The moment to invest in Newcastle is now. At the most fundamental level, the credibility and profitability of an investment is driven by precise timing. Newcastle currently offers the universal investment criteria of high demand and limited supply. The extreme ratios we are seeing in Newcastle have rarely been experienced in the UK student market, which already has a long-established reputation as the highest yielding property class in the UK. Within the last few months, the property investment industry’s leading authorities have singled out Newcastle as a rare opportunity. The very latest research from Savills – the organisation that previously indicated student housing was one of the best performing sectors during the global economic downturn, doubling investment volumes during the period – has shown Newcastle to be one of the most promising student accommodation markets in the country. Savills identified Newcastle as a top tier investment in its definitive ranking of over 50 university cities. This will no doubt initiate huge investment interest in new developments in the region. Partially fuelling the appeal of Newcastle – along with the north-east’s own internationallyrecognised status – are the city’s universities. Both Newcastle and Northumbria University are globally significant, attracting a new generation of international students to their lecture theatres with a gold-plated promise of academic prestige, continued research investment and one of the UK’s finest university experiences. Despite the growing demand, accommodation is critically undersupplied. Earlier in 2014, Knight Frank demonstrated Newcastle had one of the UK’s lowest proportions of purpose-built student accommodation. This has already contributed to the second highest rental premium in the country – and rents are still rising.
Truly, timing is everything. Now, the critical ratios seen in Newcastle speak for themselves: there are more than 50,000 students but only around 10,000 purpose-built student accommodation beds on offer. Select Property Group has identified this demand-to-supply ratio of 5:1 and, via the Vita Student brand, has the expertise to allow investors to capitalise. Vita Student’s brand promise is to put the student at the heart of everything it does. This belief ensures the investor has the student-focused product capable of excelling in a market such as Newcastle. Vita Student has a track record of full occupancy rates, which have offered investors credible, contractually assured, long-term annual yields of 7%. The brand has sold more than 1,300 properties across the UK – and we are very excited about our Newcastle development. This guide reveals the undisputable and self-explanatory reasons why Newcastle is the decisive investment in the UK’s student property market. Research is presented as comprehensive facts, figures and explanations, detailing all the sure-fire criteria of a profitable investment. It will take you on a logical progression – first explaining the reasons for the strong and growing demand in Newcastle, before analysing the existing supply of accommodation and identifying the most profitable opportunities in the city. We look forward to welcoming you to Newcastle and Vita Student.
Select Property Group | Newcastle Research Document
DRIVING THE DEMAND WHY NOW IS NEWCASTLE’S TIME
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The city exhibits an impressive array of credentials – a collection of tourism awards, booming commercial growth, a diverse local population and a social experience that encompasses art and sporting venues that are recognised worldwide. It’s obviously a list that is resonating with a rich and varied section of the student community, as so many students are relocating to the city. Around 50,000 students are educated in Newcastle every year and – crucially from an investment perspective – one-sixth of the city’s population is studying at university and in need of housing.
Student property has been highlighted by Knight Frank as the asset class investors can most heavily rely on to provide a high-yielding secured income. Any successful investment still needs to be rational and credible, however. Demand for a product does not happen by accident. It occurs as a result of underlying market trends and presently the logic surrounding Newcastle is compelling. Newcastle possesses the two prime student migration drivers – the academic prestige to attract learners from all corners of the world and the fine blend of culture, lifestyle and experience that ensures their time in the north-east of England has a positive defining impact on their lives. The presence of these crucial motivators provides the basis of a robust investment. Financial experts know a happy student environment can be directly traced to the balance sheet and in a region as attractive to students as Newcastle, the investment potential can be unrestricted.
Highlights of Newcastle’s student life Newcastle is an instantly identifiable global destination. The city is fun, friendly and vibrant with a longstanding and thoroughly deserved reputation as a favoured destination among British students. International visitors look forward to a warm Geordie welcome and a very gracious local community. As well as being one of the UK’s most important business hubs, Newcastle is also a beautiful riverscape that is equidistant from picturesque English countryside and the rejuvenating sea breeze of the north-east coastline.
OVERVIEW
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Times Higher Education survey and WhatUni have ranked Newcastle’s student life among the UK’s best In 2014, Guardian/Observer readers named Newcastle a ‘UK top 5 favourite city’ in the publications’ Travel Awards Overall satisfaction of international students stands at 90%, while 86% of international students would recommend Newcastle University to friends Grey Street in Newcastle city centre voted best overall street n the UK by BBC Radio 4 Seventh largest urban area in the UK Tripadvisor Travellers’ Choice Destination Awards stated Newcastle has the seventh best nightlife in the world Newcastle hosts many multicultural events including the music and art-focused Mela festival
Select Property Group | Newcastle Research Document
DRIVING THE DEMAND
STELLAR REPUTATION AND LONG-TERM RECOMMENDATIONS
Central to the long-term investment potential of Newcastle student property is the lifestyle people experience when they arrive in the region. From a student perspective, Newcastle offers a quality of life that few cities can match. Living the high life – Newcastle’s social life has been named as one of the very best in the UK (Times Higher Education Student Experience Survey 2012 and WhatUni) and all manner of societies, clubs and wider activities are on offer. Galleries, theatres and sport – Students want a varied and rich cultural experience from their university years and with the likes of Britain's biggest commercial gallery the Biscuit Factory, the Laing Art Gallery and, of course, the world famous St James’ Park – home of Newcastle United – all within a short distance, this city certainly delivers.
Great up north – Students can surround themselves with both exquisite Georgian buildings and cutting-edge modern architecture. Elegant and futuristic bridges shine over the picturesque River Tyne, while large city-centre parks offer a serene summer study setting. In a market in which personal recommendation is highly influential, the desirability of Newcastle is only going to increase in an era of social media and educational migration. Rest assured the current generation of students will speak of it very highly. These personal recommendations – not to mention the tangible student life awards – will further attract even more international students to Newcastle, all eager for a grand study experience.
Select Property Group | Newcastle Research Document
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DRIVING THE DEMAND
WORLD-CLASS UNIVERSITIES
Equally important to the credibility of a student property investment is the academic reputation of the city, its universities and their courses. Again, Newcastle provides, offering universities with the necessary gravitas to compete on a global stage
Newcastle University Central to the global prestige is the elite Russell Group institution Newcastle University. The Times and Sunday Times Good University Guide 2014 ranked it 18th out of the 121 universities in the UK and named it the third most impressive in the entire north-east and Yorkshire region. Furthermore, in terms of rankings compiled by the Higher Education Statistics Agency, Newcastle has a formidable profile – fifth in the UK for employability, in the top 12 for research power in science and engineering, and eighth for medical research power. This showcases the institution’s proud and world-class reputation for research excellence, a hallmark exemplified by its pioneering international branch for medicine at its NUMed Campus in Malaysia.
Newcastle University traces its origins to a School of Medicine and Surgery, established in 1834, making it the only city in England in which university teaching began with medicine and ensuring the north-east of England was the first place outside of Oxford, Cambridge and London to offer a tertiary qualification. In the many years following its celebrated origin, Newcastle University has built on its medical reputation, with many of its Biomedicine faculty's courses ranking among the very finest in the UK.
Select Property Group | Newcastle Research Document
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With both an illustrious history and a cutting-edge, contemporary scholarly status, Newcastle University exhibits all the hallmarks that make it a globally enticing study destination, allowing investors to be assured of long-term demand for student housing in the vicinity. However, just to accentuate the longevity of the investment, the institution has no plans to rest on these impressive honours. It is already actively making policies to continue its excellence. Newcastle University's Vision 2021 document sets out objectives to maintain and improve its achievements in research and student satisfaction, while aiming to further develop Newcastle's public profile as an internationally recognised city of science. This future commitment has already been substantiated by an investment of £50 million to create a major new science and technology site in the city centre. Newcastle University’s thriving student community is currently around 22,000 strong. Of which, almost 4,000 international students from over 110 countries are searching for accommodation that allows them to enjoy the city to its fullest. The university’s commitment to continuing this is demonstrated by its detailed objective of recruiting and retaining "strong and diverse cohorts of high-quality international staff and students". Another reason to signify long-term demand.
MEDICAL ROLL OF HONOUR No. 5 for Dentistry – The Sunday Times University Guide (2014) No. 7 for Dentistry – The Complete University Guide (2015) No. 8 for Anatomy and Physiology – The Sunday Times University Guide (2014) No. 8 for Other Subjects Allied to Medicine – The Sunday Times University Guide (2014) No. 9 for Medicine – The Sunday Times University Guide (2014) No. 9 for Medicine – The Complete University Guide (2015) No. 10 for Pharmacology and Pharmacy – The Sunday Times University Guide (2014)
Northumbria University Also exhibiting a major pull on the world’s student population is Northumbria University, which is located next to Newcastle University. Formerly a long-established polytechnic, it was voted ‘Best New University’ by The Times Good University Guide 2005 and has won plaudits for its IT capabilities, named as ‘Most IT Enabled Organisation’ in the UK by Computing magazine. It is also the largest university in the north-east of England and one of the largest in the whole of the UK, educating more than 31,000 students from 130 countries. Extensive developments worth more than £160 million in recent years should ensure Northumbria University can boast one of the most attractive inner-city campuses in the UK for years to come. Applications have risen by almost 50% since 2007, which is testament to Northumbria University's increasing national and international prominence. From an investment standpoint, Northumbria galvanises the cast-iron assurances that the city of Newcastle offers. This university alone offers almost 500 programmes of study, ensuring the city is fully capable of benefitting from future fluctuations in the graduate market.
Select Property Group | Newcastle Research Document
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DRIVING THE DEMAND
NEWCASTLE AND THE INTERNATIONAL STUDENT Demand needs to be supported by a market that is willing to pay. As mentioned, Newcastle has an enviable catalogue of attractions, all of which acutely appeal to international students. Earlier this year, Savills identified that “an increasingly mobile global student market, seeking high-quality, purpose-built student housing has fuelled growth in the sector” and this “will underpin demand in markets that have historically catered mainly to the domestic market”. Consequently, international students are now integral to the investment potential of the sector. Increasing affluence in many nations around the world and the recognised importance of the English language to a multitude of career paths, is now resulting in an explosion in demand for British university places. Already, the UK commands the second highest share of the international student market, with Newcastle constantly attracting around 9,000 individuals for the last decade – a figure that is set for another upturn.
Academic year
International students
2012/2013
9,315
2011/2012
9,380
2010/2011
9,265
2009/2010
9,345
2008/2009
9,645
2007/2008
8,770
2006/2007
9,070
2005/2006
8,005
2004/2005
7,145
“We believe it is realistic for numbers of international students in higher education to grow by 15%-20% over the next five years … there is no cap on the number of students who can come to study in the UK and no intention to introduce one.” Department for Business, Innovation and Skills, July 2013
Having crossed international boarders for the perfect course and city, international students are unwilling to compromise on quality when choosing accommodation and are in search of a community residency to call home. Consequently, they have an internal agenda when assessing accommodation that is as exacting as that undertaken by new homebuyers. Is the current landscape meeting these expectations?
Select Property Group | Newcastle Research Document
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SUPPLYING THE MARKET THE ACCOMMODATION LANDSCAPE IN NEWCASTLE
International students pay vast tuition fees for the notability the type of British education Newcastle offers. Having identified the high demand – and in particular the appeal of Newcastle from an international perspective – an analysis of the supply of existing accommodation in the city is required. Any potential investment in a new development designed to satisfy the demand will need to be aligned with rising expectations and distinctive in the existing supply landscape.
NEWCASTLE: IDENTIFIED BY EXPERTS
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Identified by Knight Frank as having the second highest PBSA rental premium in the UK Elevated to the elite tier of student property investment by Savills Student Property Investment Index Select Property identifies a clear gap in the growing market for high-spec accommodation, which is already attracting rental increases of between 3% and 6%
Select Property Group | Newcastle Research Document
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SUPPLYING THE MARKET
LOCAL ACCOMMODATION OBJECTIVES
Supplementing reputable industry analysis with local insight is a well defined practice in property investment. These reasons detailing Newcastle’s student property investment potential are faultless, as they come from the city’s council and universities themselves. An existing lack of high-quality student accommodation – The city’s own council has recognised a need for new PBSA to relieve pressures on communities. A requirement for campus-close accommodation – Northumbria University has emphasised the need for accommodation closer to campus buildings. Newcastle City Council agrees that proximity to a university is a key factor in a sites’ suitability.
A vast undersupply of beds – As one in six people in Newcastle are students, the demand for PBSA far outstrips supply, ensuring a long and secure income stream. Furthermore, Newcastle University is already attracting seven applicants per course place, while Northumbria University receives four applications for every available spot. Presented into its most fundamental equation, Newcastle has more students than it can effectively house and is in drastic need of more PBSA. Newcastle University currently offers 4,000 rooms on campus, across 11 different sites and this results in approximately 17,000 students looking for private accommodation. It’s a similar case at Northumbria University. Here, almost 33,000 students are competing for 5,000 halls of residence places.
Select Property Group | Newcastle Research Document
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SUPPLYING THE MARKET
NEWCASTLE AND INDUSTRY RESEARCH
Student property is particularly appealing to investors. Student buy-to-let accommodation has been identified by global property consultancy Knight Frank as an area capable of providing long-term high returns, with the authority stating “total returns in the sector have outperformed all other traditional asset classes” in the UK since 2011. However, as undergrads now pay higher fees than in the past they expect more from their student accommodation as a result and currently, on a wider scale, Newcastle is failing to meet these expectations, resulting in an identifiable gap in the market. Knight Frank’s most recent Student Property Report outlined that given the choice, students will elect to
pay significantly more for purpose-built student accommodation (PBSA) than standard houses of multiple occupancy (HMO) stock. Indeed, Newcastle was second only to Oxford in the size of PBSA rental premiums above HMO rents students are willing to outlay, with Knight Frank coming to the conclusion that students in Newcastle are prepared to pay up to 75% more for PBSA. With a massive annual influx of students and few dedicated and appealing places for them to stay, Savills has very recently promoted Newcastle into the top tier of student property investment opportunities in the UK. One of an exclusive few cities to show any ascendency in this authoritative list, it provides definitive evidence that the region is primed for a new wave of investment. Early stakeholders will not only maximise their outlay, but can own a piece of a city that is on an unmistakeable upward course.
University town and city ranking F irst
Upper Second
Lower Second
Third
Pass
Aberdeen
Ç Bangor
Ç Aberystwyth
Æ Cheltenham
Æ Bolton
Æ
Bath
Æ Birmingham
Æ Belfast
Æ Dundee
È Bradford
È
Bournemouth
Ç Canterbury
Æ Buckingham
Æ Farnham
Ç Carlisle
Æ
Brighton
Æ Chichester
Æ Chester
Æ High Wycombe
È Chelmsford
Æ
Bristol
Æ Coventry
Ç Colchester
Æ Inverness
Æ Chislehurst
Æ
Cambridge
Æ Durham
Æ Egham
Æ Lampeter
Ç Cirencester
Æ
Cardiff
Æ Exeter
Æ Guildford
Æ Lancaster
Ç Coleraine
È
Edinburgh
Æ Liverpool
Æ Hatfield
Ç Lincoln
Æ Cranfield
Æ
Glasgow
Ç Manchester
Æ Huddersfiled
Ç Luton
Æ Derby
Æ
Kingston-upon-Thames
Ç Plymouth
Ç Leeds
Ç Ormskirk
Ç Falmouth
È
London
Æ P ortsmouth
Æ Leicester
Æ Pontypridd
Ç Hull
È
Newcastle upon Tyne
Ç Sheffield
Æ Loughborough
Ç Salford
Æ Ipswich
Æ
Oxford
Æ Southampton
Æ Northampton
Æ Sidcup
Æ Middlesbrough
Æ
St Andrews
Æ York
Æ Norwich
Æ Stirling
È Newport
Æ
Nottingham
Æ Swansea
Æ P aisley
Æ
Reading
Æ Telford
Ç P reston
Æ
Stoke on Trent
Ç Twickenham
Ç Sunderland
È
Winchester
Ç Worcester
Ç Uxbridge
Æ
Wolverhampton
Æ
Wrexham
Æ
Select Property Group | Newcastle Research Document
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SUPPLYING THE MARKET
A GAP IN THE EXISTING STUDENT ACCOMMODATION PROVISION
So the need is apparent, but what is the opportunity ? With Newcastle positioned as one of the UK's most prominent university cities, the demand for accommodation is immense. Knight Frank's assertion that "structural undersupply is a feature of all core UK markets, [but] it remains most pronounced in locations such as London, Edinburgh, Newcastle and Bristol" indicates the investment opportunity is hard to match within the UK. There is simply not enough purpose-built studios to cater for the ever burgeoning inux of students.
This map of Newcastle city centre graphically illustrates the literal gap in the market for a high-quality PBSA development in the location students most desire. For more information on Vita Student Newcastle see the Vita Student story and Westgate brochure
Main city centre retail Newcastle Central Station University campus
Old traditional student housing
Purpose Built Student Accommodation (PBSA)
Select Property Group | Newcastle Research Document
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SUPPLYING THE MARKET
RISING RENTS AND HIGH PREMIUMS
As Knight Frank has identified, the student property market is the best performing asset class in the UK and in terms of Newcastle's market trends, the demand for a modern, innovative and purpose-built accommodation is clearly evident – as is the premium students are willing to pay. It has already been highlighted that PBSA premiums in Newcastle are the second highest in the UK and the Vita Student development is ready to slot into the segment of the market that is commanding the largest rental increases.
PBSA
Current rent
Newcastle average £166 Largest studios £188
Over the past 12 months, a 6% rental increase in the high-end studio market has become apparent. For the 2014/15 academic year, the average rent for the largest studio apartments is already set at £188 a week. It is evident that in a city with 50,000 students, the demand already exists. Equally clear is the effect this is having on the rental market. Newcastle premiums are already the second highest in the country and are in the ascendency. Rising rents are the final surety that underscores the student property investment opportunity in Newcastle.
Rental growth
Occupancy
Quality
Location
6% 6%+
90%+ 90%+
Low – mid Mid
West of centre West of centre
FOR THE 2014/15 ACADEMIC YEAR, THE AVERAGE RENT FOR THE LARGEST STUDIO APARTMENTS IS ALREADY SET AT £188 A WEEK.
Select Property Group | Newcastle Research Document
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FINAL WORD BY GILES BESWICK
I said in my foreword that now is the time to invest in Newcastle and hopefully you’ll now be aware just how timely this opportunity is. The student accommodation market in the city epitomises a classic supply and demand scenario, exhibiting itself as a checklist of undisputed investment criteria. Within the space of a few months, the major industry experts have pinpointed the north-east’s biggest urban hub as the emergent force in the student accommodation market. The internationally attractive institutions and world-class social life underline long-term demand, while city authorities and the universities themselves are crying out for a new supply of PBSA. Vita Student has a track record of success due to its revolutionary end user-focused approach. In Newcastle, you have seen how stark the need for high-quality PBSA in a desirable locale is and students are already prepared to pay a premium for the existing, albeit limited, accommodation in the city, so Vita Student is sure to be a popular choice. The increased demand will further propel the already established upward curve in rental rates, making Newcastle the prized opportunity you would expect it to be following such revered recommendations. The huge potential Vita Student and Newcastle offers is obvious and we look forward to making the entire investment process very straightforward for you. GILES BESWICK
NEWCASTLE PROFILE
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Identified by Knight Frank and Savills as a key emerging market in the high-yielding, £200 billion student property market
Attractive to a growing number of wealthy, international students due to world-leading universities and the UK’s best social life
Massive undersupply of PBSA
Students willing to pay one of the highest premiums in the UK for high-standard accommodation
The north-east region has seen 6% rental increases on high-end studio apartments in the past 12 months
Select Property Group | Newcastle Research Document
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REFERENCES
http://www.timeshighereducation.co.uk/world-university-rankings/2013-14/world-ranking/institution/newcastle-university
http://www.ncl.ac.uk/international/assets/documents/SABBrochure2012.pdf
http://www.whatuni.com/degrees/university-uk/newcastle-university-ranking/3755/page.html
http://www.ncl.ac.uk/about/quality/
http://www.ncl.ac.uk/diversity/assets/documents/annual-report-appendix-1-2012.pdf
http://www.ncl.ac.uk/international/
http://www.ncl.ac.uk/international/country/southamerica/brazil/science/study.htm
http://www.ncl.ac.uk/international/assets/documents/SABBrochure2012.pdf
http://www.whatuni.com/degrees/university-uk/newcastle-university-ranking/3755/page.html
http://pdf.euro.savills.co.uk/residential---other/spotlight-world-student-housing-2014.pdf
https://www.northumbria.ac.uk/study-at-northumbria/accommodation/
http://www.ncl.ac.uk/international/#hp-nav
http://www.ncl.ac.uk/biomedicine/about/leaguetables/
http://www.ncl.ac.uk/documents/vision2021.pdf
http://www.thesundaytimes.co.uk/sto/University_Guide/
http://www.ncl.ac.uk/about/assets/documents/keyfacts.pdf
https://www.northumbria.ac.uk/study-at-northumbria/information-for-parents/working-on-the-future/
http://www.thecompleteuniversityguide.co.uk/northumbria
http://www.unite-students.com/newcastle/manor-bank
http://www.unite-students.com/newcastle/magnet-court
http://digportlandgreen.co.uk/downloader/bc5.pdf
http://www.studentcastle.co.uk/newcastle-student-accommodation/costs/
http://www.libertyliving.co.uk/student-accommodation/newcastle/liberty-plaza/residence-information
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