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QD view – student digs top of the class for COVID rebound?

University students have been having a hell of a time of it during COVID. After the debacle of last September when they were encouraged to attend classes and take up accommodation only to then be effectively locked up while the virus ravaged through campuses, they have not just missed out on university life but have been expected to rack up debts of tens of thousands of pounds for the privilege.

To their credit, listed student accommodation specialists have offered rental discounts to students that have signed up for digs but have not able to occupy the room. However, the impact on their income has been vast.

GCP Student Living (DIGS), which owns a portfolio of 11 student accommodation properties worth £1.03bn, weighted to London, said in half-year results published today that it expects to collect between 55% and 60% of budgeted total income of £60.1m for the 2020/21 academic year.

This is a clear reflection of the pressure the sector is under, but what are its long-term prospects?

This academic year, bookings across DIGS’s portfolio, which totals 4,116 beds, were for 68% of available rooms, with actual occupation of 64%.

Reservation rates for the academic year starting this September were not disclosed, but the group expects bookings to come through later than usual this year given the uncertainty caused by COVID.

If we look at the make-up of its current student customers, DIGS is heavily weighted to international students. More than half (58%) are international (ex-EU), with 27% UK and 15% from the EU.

One would expect demand from international students to drop off due to travel restrictions, quarantines and general uncertainty over the pandemic, but UCAS undergraduate application statistics for university places for the 2021/22 academic year show a 17% increase from non-EU international students and an overall increase of 8%.

Applications from Chinese, Indian, US and Irish students are markedly up (21%, 33%, 61% and 26% respectively). These statistics are not swelled by a low base last year. In fact, university place acceptances rose in 2020 by 5% in total to 570,475, with non-EU students rising 17% year-on-year.

These increases were centred on London, where five of the 24 Russell Group universities in the UK and two of the top 10 in the world are located. These had growth of 9% in 2020 and non-EU international student growth of 30%.

The success of the vaccination programme in the UK raises the likelihood that face-to-face teaching will be allowed next academic year, which should translate into higher student accommodation occupancy levels and rent collection.

None of this has been lost on investors. Investment in student accommodation assets took off last year, underpinning the long-term appeal of the sector to investors. Around £6bn of assets were transacted in 2020 – a record, while £1.1bn of deals were signed in the final quarter alone.

Income at student accommodation specialists has been heavily impacted during COVID. However, demand for places at the best universities has only increased, and coupled with a likely return to face-to-face teaching, the short and long-term prospects of the sector are promising.

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