The Educational Business

In May 2017, we looked at the issue of big business moving into the British student accommodation sector in a concerted way. On the same subject, the Financial Times is reporting this week that the market has increased in scale, so much so that the issue facing the sector now may be saturation. This development comes at a time when the British Higher Education (HE) system, at least, is being potentially impacted by a number of factors. In today’s post we will assess the FT report and aim to contextualise this supposed saturation of the market against the current issues in the HE sector.

The FT chooses to focus on Plymouth, in the south of the UK, in order to set its analysis. The article is full of anecdotal accounts of the differing landscape in the city, and also the experiences of those who live there. However, there are a number of important statistics that are contained within the article. For example, investment in the sector has actually been reducing according to Savills Operational Capital Markets, with the 2018 level of investment coming in at just over £3 billion, as opposed to just under £4 billion the year before. Interestingly, the make up of that global investment has also changed. At its height in 2015, the global investment in the British student accommodation market was measured at just shy of £6 billion, with US, Russian, and British investors making up the majority of that investment. In 2018, the American and Russian investors have reduced their appetite for the marketplace, with European investors now making up the majority. Asian investors, who in 2016 where heavily invested in the marketplace, have now followed a similar pathway to their American and Russian counterparts. BlackRock, the world’s largest investment manager, is currently selling £300 million of its accommodation portfolio. The sentiment from these statistics is that the market is peaking, with the FT reporting that, for the University of Plymouth, there are still student rooms going spare just a week before the term is due to start – supply is outstripping demand.

However, the report goes on to suggest that this scenario may not last for long. Currently, the rate of student enrolment in the UK has rebounded since a dip in 2015 and now stands at 550,000 for this coming academic year. Yet, this rise in enrolments has been met with criticism. For example, the British Education Secretary has backed a review into the admissions process in the UK, after a 4% rise in unconditional offers being sent out to applicants was reported a month earlier. Whilst the rise may seem inconsequential, it is part of a wider concern that Universities are now competing against each other for students in a detrimental way. Another aspect that the British Government has flagged is the potential issue of grade inflation, which would potentially distort the retention figures, as well as the performance of Universities (amongst other things). These concerns, when viewed together, form part of a much larger societal issue.

It was interesting to read that the University of Plymouth was keen to distance itself from the private marketplace and declare that ‘the rise in new student accommodation developments around the city is in no way directed by the university and is being driven by private commercial developers wholly independent of the university’. There is, of course, no reason to doubt this but the need to make the statement shows that the University understand the implication that lays beneath this story. Any analysis of the sector shows that Universities are competing with each other for student numbers, with the associated fear being that it becomes a race to the bottom. Recent reports suggesting that students are waiting for up to 3 months for mental health care point towards the conclusion that the Universities are not built to cope with the amount of students they are currently recruiting. If that is the case, then the increase in private pressure regarding the building of student accommodation will only make the situation worse. Will it be the case that Universities, in the coming years, begin to lower their entry criteria and make unconditional offers on that lower basis? If so, the potential of harm to the student body increases, as students will be participating in a highly-pressured environment, which is an environment that cannot then meet the demands that such students may require. Although the pressures are relative, the higher-ranked Universities bring with them their own version of HE-related pressure and, if they choose to engage in this theoretical race to the bottom, then that potential of harm fundamentally increases. Yet, the push for more students will increase year on year, irrespective of the effect. With tuition fees now reaching £9,250, would a British University really turn away students on the basis of quality, in order to fulfil their obligations to the best of their ability? Or would the fear of not bringing that revenue in, especially in relation to their competitors, determine their actions? The answer to that question is, of course, difficult to come up with. However, the fact that it is a question is the real concern. The Higher Education system should be exactly that – educational. The focus on money, especially to the degree that it currently exists, is a fundamental problem within the sector. It is crucial that there are rules in place to prevent the potential race to the bottom in the sector. Whether the governmental concerns and proposed reviews help facilitate this is another matter, unfortunately.

Keywords – education, business, accommodation, university, @finregmatters