41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 25
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
However, the business is not immune to pressures created
by inflation and higher interest rates.
COMPETING
SUPPLY
CONSTRUCTION
COSTS
There has been a steady slowdown in new supply of PBSA
from a peak of 30,000-35,000 beds p.a. in 2017-2019 to
only 19,000 beds delivered in 2022. This reflects delays to
development deliveries resulting from the pandemic as
well as tighter financial conditions for developers.
Strong construction market activity following the pandemic
and energy-driven material price increases have driven
high levels of recent build cost inflation, as reflected in
the BCIS forecast for 7.9% UK price increases in 2022.
The stock of student housing in the HMO sector is also
expected to reduce as a result of increasing regulation
for private landlords. This includes increasing Minimum
Energy Efficiency Standards (MEES) which will require
rental properties to achieve EPC ratings of at least C by
2027 and B by 2030. This will result in additional costs
for HMO landlords and may see many choose to exit the
market, which we expect to be reflected in higher rents
for students living in HMOs.
A recessionary environment in 2023 suggests that the
market has peaked post-pandemic and is entering a new
phase. Input cost prices for key materials such as concrete,
steel and wood have fallen from their highs in the summer
of 2022. Contractors also anticipate more competitive
tendering for projects as the volume of new work reduces.
This is expected to contribute to build-cost inflation
subsiding to lower levels in 2023 and 2024.
What it means for Unite
What it means for Unite
•
Tight supply conditions and healthy student
demand are supportive of strong occupancy
for the 2023/24 academic year
•
•
Lower supply and increasing costs in the HMO
sector create an opportunity to retain more first
year customers who might otherwise move into
the HMO sector
Higher development costs for projects in our
development pipeline, where we are yet to
commit to fixed-price build contracts. This
presents challenges for the viability of new
development, particularly when combined
with higher funding costs
•
•
Reducing construction activity in the PBSA
sector and wider economy is likely to result in
a reduction in land pricing and construction
costs over time
These challenges have caused us to delay the
delivery of certain projects in our development
pipeline while we seek to improve returns
•
We are targeting higher returns on new
development activity to reflect the higher funding
cost environment, which will require a reduction
in land values or build costs as well as potentially
increased rents
•
Slowing development activity will create
significant demand/supply imbalances
in stronger markets, which increase the
attractiveness of development activity
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