Brexit Q&A with Richard Gabelich, CEO UK

September 02, 2016

The UK’s decision to leave the EU brings with it immediate questions on the potential impact across the university sector and subsequent knock on effect on purpose built student accommodation (PBSA). While there is uncertainty until the government negotiates the UK’s position with the EU, Richard Gabelich, CEO at Campus Living Villages UK, discusses the potential impact on the student accommodation sector.

Q. Although it’s early days, what do you see as the key impact points on Campus Living Villages in the UK?

A. Beyond the general macro effects on the UK economy, as a business that prides itself on forming strong long term partnerships with universities, it’s of paramount importance that we carefully monitor the impact on the Higher Education (HE) market as a whole. Ultimately, this impact will be materially determined by three key impact points:

  • Student demand – EU students account for approximately 5.5% of all HE students, or 6.4% of all full time students, and pay the same tuition fees as UK based domestic students;
  • University funding – UK universities receive approximately 15% of their research funding in the form of EU grants accounting for approximately 2.6% of total income; and
  • Investment views – the UK PBSA market has been well supported by our equity and debt providers who may alter their views on the sector depending on the wider BREXIT impact.

Q. Beyond the EU students who account for approximately 5.5% of the UK market at present, what impact do you on student demand as a whole?

A. The ultimate impact on student demand higher education in the UK will depend on the following:

  • Visas and Single Market Access: With uncertainty regarding the UK government’s possible future policy on student visas we could see a number of immediate consequences. For example, a rush of EU and/or international applicants wishing to take advantage of the current known visa (and tuition fee) policy of the day. Ultimately, if EU nationals are no longer eligible for local equivalent funding this will reduce the overall appeal of this destination to the average EU student. This may be harder felt in Scotland and Wales where in certain circumstances EU nationals pay less than UK students from outside their respective regions.
  • Exchange rates: International students could be encouraged to enrol to take advantage of the lower value of the pound should it not fully recover to pre-referendum levels. If the cost to study abroad remains inflated for UK residents we may also see a short term spike in domestic applicants, who may have otherwise considered international study.
  • English Language: The UK will continue to be the only significant English speaking region on the European Continent, except for Ireland. As such, it is reasonable to assume this will continue to attract a moderate number of EU students seeking an English speaking degree. However, Irish universities may ultimately receive a benefit of taking proportionally more enrolments on the back of their retained and now unique English speaking EU status.
  • Funding and reputation: There have already been reports of funding withdrawals and re-negotiation of research partnerships with EU institutions creating an uncertainty amongst academics and potential longer term reputational impacts if not addressed.

With so many variables to consider we will continue to monitor the market in order to best prepare our business, as well as working with our joint venture and university partners to best adapt to which theory becomes reality.

Q. With a seeming general desire (within HE) to remain in the EU, what impact do you believe the decision may cause to the sector?

A. Taking into account the statement released by the President of Universities UK and the government’s statement on higher education and research post-referendum, we believe there is a clear commitment to EU students. Both reaffirm previous statements that the current visa policy remains unchanged which ultimately covers EU national University workers as much as any other group.

There have also been press reports that some universities have also moved to re-assure their EU student base that they have no intention of making any changes to tuition fee structures regardless of the future arrangements negotiated with the EU.

We would consider that it is unlikely that the UK will see increased enrolments from EU students in the short term until such a time that the dust settles and the UK is fully separated from the EU, but these statements display a clear intent to stabilise the sector and support students from the EU.

Q. What impact do you see on investment in the sector?

A. Aside from the short term volatility of the sterling we could see a more favourable market for investment as some of the rules imposed from Brussels ultimately could be relaxed. A potential fall in interest rates may also continue to encourage international investment in UK housing.

Importantly, we still have a significant development pipeline and we don’t see either equity or debt appetite for good quality transactions changing. The PBSA market is widely considered to be in a state of structural under supply and a relatively low risk and recession resistant asset class. Remembering that EU students account for only 5.5% of the market, it is unlikely that any dissuaded EU students concerned they may face higher international fees in the future will make a material impact on demand in the sector.

Q. So taking all the above into account, what is your early prediction on what will happen within the sector?

A. No-one can know exactly what the future looks like following the assumed, eventual invocation of article 50 and the terms of an EU exit. However, with the swift reassurance coming from the UK government and the relatively low proportion of students, and indeed funding that can be attributed directly to the EU, we don’t feel these will materially change the fundamentals of the market. The UK will continue to be a sought after destination for international education and the future of the PBSA sector remains fundamentally sound.

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