SCHOOL OF THOUGHT
Mcinnes
BOOMS are usually followed by busts. Just ask the private investors who have poured their money into student accommodation schemes.
The overheated market is now well and truly in trouble. And it’s not just down to the coronavirus pandemic which has led to a collapse in demand for student flats.
Last week, I reported on the case of The Met, a studio apartment complex in The Midway, Newcastle. It took its name from the old Metropolis nightclub which used to occupy the site.
When planning permission was granted for the block of 211 studio rooms, it was seen as a way to regenerate a prime spot in the town centre.
Then came Covid-19. Now half the flats are lying empty as its target market – which includes postgraduate and overseas students – is drying up.
The owners reckon they can ride out the storm by offering short-term lets to non-students. The kind of people who might otherwise stay in local hotels and B&BS. They hope they will appeal to groups of key workers, such as hospital staff planning to self-isolate as they don’t want to expose their families to coronavirus risks.
Hotel owners in Newcastle aren’t happy. They fear The Met will ‘scoop up’ their business at a time when their income has taken a severe dent from the pandemic.
Enter Newcastle Borough Council. It has treated the whole affair as a simple planning matter.
Councillors have now approved a temporary variation of planning conditions, which will enable The Met to take other types of tenants until August 2022. So has it just been allowed to become an aparthotel through the back door?
Don’t get me wrong. The Met might be a lovely place to stay. The issue is it’s yet another example of a failed student accommodation project.
You’re probably familiar with the glut of student flats that have sprung up in Newcastle and Stoke. They have placed themselves within easy travelling distance of both Keele University and Staffordshire University.
Local authorities have been falling over themselves to attract the ‘student pound’. If only you could get more students to live in town centres, you could increase trade in shops, cafes and bars.
Even without the pandemic, that seemed a risky regeneration strategy. Yet the planning applications keep rolling in.
On the other side of The Midway, permission was granted back in June for 89 studio flats.
In Stoke, the former police station is now being turned into 139 flats. And just last week, a development for 133 studio apartments was approved in Registry Street in the town.
Take a closer look and you’ll see many, although by no means all, student accommodation schemes use a similar business model.
A developer buys a piece of derelict land and then sells the individual off-plan flats to investors for up to £70,000 per unit. Some investors are in far-flung locations like Dubai. They fall for the sales patter and the guarantee of high returns. Then things go wrong and they lose all their money. The management company is replaced by a new one, often linked to the same developers.
The other victims are the students, who are paying steep rents to use these flats.
The privately-run student accommodation market is also under-regulated.
Emily Walsh, principal law lecturer at the University of Portsmouth, has pointed out these developments don’t fall within the HMO licensing regime if they include studio flats or smaller shared flats. She believes there needs to be a tougher approach so private providers are properly held to account.
In Newcastle, the Sky Building is a stark reminder of the risks involved. After the original firm ran out of money, it is still lying halfbuilt three years after it was supposed to have opened.
Last year, Q Studios, in Stoke, also hit the headlines. It was one of 19 buildings in a £100 million property scheme that attracted more than 1,000 investors from around the world.
According to the FT, the company A1 Alpha Properties (Leicester) Ltd was also linked to student rooms in university cities like Bradford, Preston and Leicester before collapsing into administration.
Q Studios’ flats are still being rented out to students. But like all its competitors, it exists in a saturated market. Property bubbles eventually burst.