Recent figures from the Office for National Statistics (ONS) showed demand for UK goods and services continues to grow, with exports rising to £637bn in the year to August.
A rise of 5.5% compared to the same time last year. One industry leading that charge is the Higher Education sector. The UK is the 2nd most popular location, behind the United States, for international students.
We have some world class Higher Education institutions in the UK, which offer highly desirable courses to international students. Of the over 1.8 million full time student population in this country, 23% are from outside the UK. It is a key export sector for the UK economy.
That’s not to say there isn’t strong demand from within the UK as well. Overall demand for applications continues to outstrip available course places. On average, over the last 6 years, demand for course places has outstripped available supply by over 35%. We expect demand for places to remain strong over the longer term with demographic trends implying a significant growth in the student age population from 2022 onwards.
Full time student applications continue to outstrip available places
Providing good quality, affordable accommodation to students is vital to the ongoing success of the Higher Education sector.
UK universities frequently cite their guarantee of accommodation to first year and international students as a key competitive point of differentiation. Moreover, students are increasingly opting for purpose built accommodation, which offers dedicated facilities like study rooms, high speed Wi-Fi, and 24/7 customer care. This has the benefit of freeing up the existing stock of housing for more general needs.
However, financial constraints on many universities mean that they are building very little new accommodation themselves, preferring to spend their money on upgrading campus facilities like lecture halls, libraries, and laboratories. The gap has been filled by the independent providers of student housing such as Unite, who are the biggest in the UK with just under 50,000 beds.
They let out accommodation both directly to individual students, but increasingly through “nomination” agreements with various universities. These agreements see the universities guarantee Unite, to a greater or lesser extent, that they will fill the rooms in their properties. For the universities this allows them to continue to attract students, and for Unite it provides a highly visible and recurring income stream, usually linked to the level of inflation.
Unite is a core holding for a number of funds in our Ethical range of products, across both their equity and bond instruments. Indeed, our Ethical Corporate Bond Fund recently participated in a new bond transaction from them, which offered an attractive coupon of 3.5%. We also have exposure to bonds issued by Liberty Living, a privately held provider of student accommodation in the UK, with over 20,000 beds.
For us, these are prime examples of the type of investments we are looking to make in these funds. Ones which help provide long-term, sustainable solutions in an important industry, whilst offering attractive returns for investors.
Iain Buckle, Kames Capital
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The opinions presented are those of Kames Capital fund managers as at the time of publishing and may change as subsequent conditions vary. They are not intended to be relied upon as a forecast, research or investment advice, and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Companies mentioned may not necessarily be held in any of Kames Capital funds. The information and opinions contained in these pieces are derived from proprietary and non proprietary sources deemed by Kames Capital to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the listener/viewer.