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One of Britain’s largest student landlords has claimed that its halls will be full for a third straight year, defying talk of falling university admissions and enabling it to impose another above-inflation increase in rents.
Empiric Student Property said that former A-level students would need to act quickly if they wanted to secure a last-minute spot in one of its buildings.
The landlord said that it had sold 92 per cent of its beds for the forthcoming academic year, which begins in a few weeks’ time, and that it expected its occupancy to surpass 97 per cent soon, effectively meaning that its rooms will be fully booked.
Empiric rents out 8,000 beds nationwide under its Hello Student brand. It is at the premium end of the market, with its fanciest studios fetching nearly £2,000 a month.
In the first six months of 2024, Empiric’s rents were, on average, 10.5 per cent higher than in the same period of last year. For the coming academic year, it expects to put up its rents by at least another 6 per cent.
The increases are likely to continue. “We’re spending a lot of money on refurbishing rooms, as a result of which prices go up a little bit more because we’re offering a better product,” Duncan Garrood, 65, Empiric’s chief executive, said. “We’d expect to be a couple of [percentage points] above inflation for the foreseeable future.”
In Southampton, Empiric closed one of its blocks for a year to carry out an extensive renovation. Those halls will reopen again next month, with rents now 50 per cent higher than they were before the refurbishment works began.
Rather than spruced-up rooms, an imbalance between supply and demand is mainly driving up rents. Unite Group, Empiric’s larger rival, said recently that it would increase its rents by 7 per cent or more in this academic year.
Higher mortgage costs, less generous tax relief and the prospect of having to invest heavily in properties to improve their eco-friendly credentials have led to hundreds of landlords owning private houses of multiple occupation to sell up, which has taken an estimated 146,000 student beds out of the market over the past four years. At the same time, higher borrowing costs and a slow planning system mean that only 15,000 or so new student flats are being built every year, about half the rate of before the pandemic.
Much has been made recently of falling university admissions, particularly from overseas students, which in the coming academic year will make up about 60 per cent of Empiric’s customers. However, Garrood said the reports had been “a bit misleading”. Of the 40,000 year-on-year fall in international student numbers, he estimated that about 35,000 of them would have been family members who, for some reason, used to be included in the figures. Rule changes mean that they are no longer allowed to accompany those from overseas studying in the UK.
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Similarly, although a smaller proportion of UK 18-year-olds applied for university this year, because there was a bigger cohort of them in the country, “the absolute number of 18-year-olds applying to university has gone up by 0.6 per cent”. The number of 18-year-olds is set to rise each year until 2030.
He does share concerns that have been aired about the health and attractiveness of less sought-after universities. That is why Empiric has been focusing almost exclusively on “core Russell Group cities”, such as Bristol, Manchester, York, Glasgow and Edinburgh. It has sold off blocks near “secondary” universities in places such as Stoke and Hatfield.
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Donald Grant, Empiric’s chief financial officer, said that shift would allow the group to take advantage of the “flight to quality” being reported in the higher education sector. “International applications are down, but when you dissect the data and look at the applications to different tariff universities, the higher-tariff and the secondary universities, there’s a real polarisation occurring, a flight to quality,” he said. “Higher-tariff universities have increasing applications, whereas lower-tariff universities have seen quite a fall.”
Given the cost of going to university, school-leavers and international students increasingly want to study only at the best universities in the most desirable towns and cities. Like Unite, Empiric wants to be closest to those universities where it thinks demand will be more resilient.
“Most of these universities have been around for hundreds and years and have built their reputations,” Garrood said. “The stability of their reputations means that they will continue to attract students for ever.”
Student landlords have been accused of gouging their customers, but Garrood was adamant that, despite the rapid rent increases, Empiric remained “genuinely good value for money”, pointing to a record number of “rebookers” this year. Almost a quarter of those who stayed in a Hello Student building last year are doing so again in the next academic year.
Shareholders are benefiting from the favourable dynamics in the sector, especially for landlords in and around the better and busier universities. Empiric has increased its half-year dividend by 7.7 per cent to 1.75p per share. Half of that it has already paid, with the other half being paid on September 20.
Between January and June, the business generated revenue of £42.4 million, up 2.7 per cent year-on-year, as sales of some buildings offset the rent increases. Its pre-tax profits edged up to £24.8 million from £24.6 million, with the gains limited by an increase in finance costs.
Empiric’s shares rose ¼p, or 0.3 per cent, to 98¼p, valuing the business at nearly £600 million.