Student accommodation has been a "bullet-proof" investment, but experts predict it's now on track for a year of disruption due to the coronavirus crisis and its impact on the property market.
U.K. universities had to move their teaching online as the British government introduced lockdown measures in late March. It's currently unclear how higher education will work in the upcoming academic year and without students attending face-to-face classes, on top of the travel restrictions, the crisis is weighing on this niche investment opportunity.
"There will be a short-term disruption" in student accommodation, Joanne Winchester, an executive director at commercial real estate services and investment firm CBRE, told CNBC Tuesday.
Unite Students, one of the largest student accommodation providers and owners in the U.K., said in April it expected a loss between 16% and 20% in rents for the 2019/20 academic year. Empiric Student Property, another firm in the U.K., said in May it expected a drop of up to 12% in income for the current year.
Although the market is seen as fairly illiquid, these property firms are also investment trusts that allow people to gain exposure to this sector. The Unite Group's stock price on the London Stock Exchange fell 50% from the start of the year until March 19, and is currently down around 27% year-to-date. Empiric has faced a similar price move, currently trading about 33% lower since the start of the year. The hefty changes in prices indicate investors have sold the stocks.
Many students, when told their classes would move online, moved back home and asked for refunds or requested to be relieved from their contracts. Accommodation is typically a major expense alongside university fees.
Andrew Burrell, chief property economist at Capital Economics, said the sector was "bullet proof in the past," but not anymore. Its upcoming performance will depend on when demand picks up, as well as on which markets are currently oversupplied, he added.
Cambridge University, for example, has gone as far as announcing that all lectures will be done online until the summer of 2021, though there could be some smaller teaching groups in person. Oxford University is planning a combination of face-to-face and online teaching when the next academic year begins. The English universities of Reading and Manchester have said their lectures would be fully online during the fall term.
These announcements mean that many students won't need to pay for accommodation for some time.
Empiric said that 47% of its rooms were reserved for the upcoming year in comparison with a 54% reservation rate at the same time last year. Unite also said that 80% of its rooms were booked for 2020/21 compared to 81% a year ago. However, both firms have noticed lower demand from international students so far.
Non-U.K. domiciled students accounted for 20.4% of those attending undergraduate and postgraduate courses in U.K. universities in 2018/2019.
However, international travel is still disrupted with many countries prohibiting flights from areas with large infection rates. In addition, there will be a 14-day compulsory quarantine for those arriving in the U.K. from June 8 onward. These steps could put many international students off studying in the U.K. in the new academic year.
Winchester from CBRE expects six to 12 months of disruption with a return to normal for the academic year 2021/22. "It's all about the experience," she said, regarding why students go to universities.
"There would be a backlash (in fees) if you weren't getting the same access and universities rely on the fees," Winchester added when asked about potential structural changes to how higher education works.