No. of Recommendations: 3
Here are more detailed notes which are a mixture of written notes and extracts from various sources. That’s enough from me on Unite.
I also noticed at least one typo in my previous post referring to the Unite acquisition which should have said Empiric acquisition.
More detail:
Lower-tariff Universities
A two tier market exists in UK student accommodation (PBSA). Occupancy in Leicester (84%), Nottingham (70%) and Sheffield (67%) has been impacted from: high supply of new PBSA; lower-tariff university exposure; and international decline. The combination of these factors has had a significant effect on occupancy. Students at lower-tariff universities are significantly more likely to live at home (50% compared to 15% at higher tariff universities). Lower-tariff universities often have a specific mission of widening participation to students from disadvantaged areas. Commuting and living at home usually makes financial sense. The student cost of living crisis has accelerated the trend. International students are significantly less likely to choose lower-tariff universities. The January 2026 UCAS cycle shows that international undergraduate applications rose by 6% to 7%, compared to lower tariff at which experienced a 4% to 7% decline (following a 14% decline in the previous year).
International students are laser focused on global rankings and future earnings. The UK visa changes have impacted lower-tariff universities (preventing students from India and Nigeria from bringing dependants). Higher-tariff universities rely more on students from China and the US, who are less affected by by these specific visa rules. Lower-tariff universities are under more financial strain as they lose share to higher-tariff universities. It’s the inverse to the Harvard dynamic that Charlie Munger previously commented on. The reinforcing credential: the smartest students apply, the top employers recruit and the prestige increases.
Unite’s pristine occupancy rates of the past have been impacted by these lower-tariff dynamics. Unite is now aggressively de-risking the portfolio, by doubling its disposal rate (£300-400m p.a.) to increase its higher-tariff exposure to 80%. They are shifting their focus towards nominations agreements with Universities and favouring partnerships with universities over direct developments. That reduces occupancy risk, reduces marketing costs and reduces capex. They are using that capital and buying back £100m of their own shares at a deeply discounted price.
The disposals raise the question: can they get good prices for the properties they sell. It’s not just as simple of selling the properties and converting them to residential, of which there is a chronic shortage in the UK (think redevelopment costs; full planning applications; Sept 2026 double staircase regulations; nationality described space standard regulations; amenity requirements; affordable housing levies; The new Building Safety Levy).
What Unite is actually doing is selling to smaller players; conversion to Co-Living (aimed at young professionals which may suit the Empiric higher end properties in low tariff university areas); local authorities for use as temporary social housing. Clearly, monetising the carrying value for these assets is a risk and Unite investors will be monitoring disposal activity closely for how the proceeds compare to the value on the books.
The China factor
A degree from a mid-tier UK university is no longer seen as a sufficient return on investment for Chinese students. The Chinese government uses the QS Top 100 as a filter for significant life benefits. To live and work in cities like Shanghai or Beijing, returning students often must have a degree from a top ranked university. These elite graduates qualify for tax breaks, housing subsidies and startup grants.
Many large Chinese corporations use systems that filter out applicants whose university is not top 50 or 100. There is a growing stigma in China that a one year UK masters is too easy and only a UK degree from Oxford, Cambridge or LSE, or a top Russell Group will do.
There is also a trend towards Malaysia, Singapore and Hong Kong. Lower tariff UK universities are not attracting Chinese students. These students tend to stay in Purpose Build Student Accommodation (PBSA) for their whole student life and have been lucrative customers for Empiric, who focused on this demographic. The CCP has also tightened its grip on where students study, favouring STEM and universities with links to Chinese universities. These tend to be high tariff universities with large research budgets and high level diplomatic and academic links.
Occupancy by type and domicile by academic year
Direct let to Chinese students decreased from 14% (202/23) to 12% (2025/26).
General Market Dynamics
The higher-tariff university tier is less affected by the challenges facing the lower-tariff and there are many favourable market dynamics. While some cities have recently faced oversupply (as noted above) in certain sub-markets and a few universities have seen falling student numbers, the broader supply of new accommodation is being constrained by higher costs and a muted development pipeline, with net new supply forecast to decline in 2027. This runs counter to supportive underlying demand trends, including projected growth in the domestic 18-year-old population until 2030.
Although recent policy changes create uncertainty, the UK retains its global appeal,
and student demand continues to polarize towards the high-tariff universities that
are central to Unite’s strategy.
While some markets have been oversupplied in recent years, as seen by Unite's
lowest average occupancy over the last two years in areas that saw the largest share
of PBSA beds delivered since 2020, a sustained lack of new development should
lead to a rebalancing of supply-demand dynamics, particularly in regions where
new development has been less concentrated.
With private landlords of HMOs facing increased financial pressure from rising mortgage rates and new regulations - including potential impacts from the Renters
Reform Bill (PBSA exempt) - Unite has an opportunity to capitalise on demand should
more HMO supply leave the market; especially as over 50% of students needing
term-time accommodation live in HMOs.
Undergraduate acceptances (28 days after results day) from non-EU students rose
6.7% y/y in the 2025/26 after 2 years of declines, marking this group the fastest growing
segment in the current cycle. While the overall increase is positive, it's
important to note the nuanced regional trends: acceptances from Chinese students
rose significantly by 20% (after 2 years of declines), now accounting for 33% of the
non-EU undergraduate intake (29% in 2024/25), while Indian student acceptances
were down by 8%. US student figures increased 10.8%. Overall growth in
international students has disproportionately benefited higher tariff universities
with non-EU acceptances to these institutions increasing by c.83% between 2016
and 2025, compared to around 7% for medium and low-tariff universities. Early 2026 data from the October deadline (representing c.10% of applicants)
shows similar trends with UK numbers growing 5.6% yoy outpaced significantly by
non EU applications up 12.9%. The more comprehensive January deadline data
builds on this momentum, with total international applications up 5.1% y/y ( UK
2.6%). Non-EU students continue to be the fastest growth segment, up 5.4% with
roughly half of the growth coming from China, helped by small increases from India,
US and Ireland.
Whilst undergraduate numbers have been robust, recent OfS data shows declines
in full time postgraduates, where international students make up a much larger
proportion of the population. This trend has continued following the January 2024
visa reforms, which prevent international students from bringing dependants,
disproportionately affecting postgraduates. Although these students are less likely
to live in PBSA, stronger undergraduate intake has mitigated the impact of this
decline, maintaining stable international demand at 28% of UTG's occupancy since
2022/23.
However, the outlook for international student numbers in the UK is expected to come under
pressure. A UK government white paper has proposed reducing the Graduate
Route to 18 months and implementing stricter English language and sponsor
requirements. Further complicating the landscape, a £925 International Student
Levy per student p.a is set to be introduced from August 2028. While the impact of
these measures will vary across different student cohorts and institution types, the
Department of Education estimates that the levy's implementation could lead to a
loss of 14,000-16,500 students per annum (c.12% of international applications).
Despite these headwinds, the UK still retains substantial global market appeal for
international students even if competition from other nations is certainly
increasing. The UK is disproportionately represented in the world rankings with 17
universities in the QS Global Top 100 compared to US (28), Australia (8) and Canada
(5). The UK can also benefit from geopolitical tensions and stricter student visa
policies in other major study destinations. For instance, the US experienced a
significant year-on-year drop in international student arrivals in August, the largest
decline outside of the pandemic, with Asian student enrollments falling by 24%
mainly due to heightened US-China tensions.
With near term concerns over postgraduate international numbers and the natural
shift to more domestic students, there has been an increase in demand for shorter
tenancies (40-44 weeks vs 51 weeks) to better match the academic year and habits
of UK students. While this doesn't impact the occupancy numbers, this has the
potential to create a drag on overall LFL rental income and growth. Shorter tenancy
lengths reduced UTG's LFL income growth by c. 1% in AY25/26 and could well
continue to drag on rental growth if we see a growing portion of lets to UK students
but is likely to be a smaller part of the overall equation.
Higher construction costs and new building regulations, including the Building
Safety Act, have dampened new development starts, particularly for affordable
PBSA stock. Viable developments now typically require minimum rents of £230 per
week, leading to a concentration of construction in more price inelastic regions like
London, Glasgow, and Manchester, and in accommodation types such as studios,
which can command higher rents. PBSA deliveries in 2025 increased from lows
seen in the prior 2 years but remain well below historic averages. Overall net new
supply is expected to contract in 2027 given 2025 saw the lowest number of PBSA
planning submissions in the past 5 years.
The 18 year-old population in the UK is projected to grow by 11% by 2030,
presenting a significant tailwind for higher education demand and, consequently,
for PBSA. This demographic boost, alongside a 3.7% year-on-year increase in 18-
year-old British acceptances in 2025, suggests a robust stream of domestic
undergraduates. This relationship between population numbers and higher
education demand, however, is not linear and depends on the participation rate,
which has stayed stable around 36% in recent years. Assuming the participation
rate is unchanged, demand from population growth alone should lead to c.100k
additional undergraduate student places. While this demographic tailwind is strong until 2030, medium-term projections from HEPI reveal a shift: the 18-year-old population is then expected to decline by 7% between 2030 and 2035, and a further 12% between 2035 and 2040, resulting in a total 17% reduction from the 2030 peak to 2040. Despite this potential
headwind, past trends have shown that higher education participation increased
even during periods of declining 18-year-old populations (2010-2020), partly driven
by initiatives from universities and governments but ultimately reflecting the appeal
of university to young people.
Rent prices for student accommodation have grown consistently, often
outpacing the increases in maintenance loans (which undergraduates typically rely
on to cover accommodation costs), a trend significantly exacerbated by the
ongoing cost of living crisis. Although the average maintenance loan has increased,
now representing 77% of the maximum available for 2025/26 (up from 59% in
2016/17), affordability has worsened in every major UK city since 2016. London remains one of the least affordable cities with fewer than 50% of beds priced below
the maximum loan in 2025, and seeing average annual rent in its halls grow 21%
between 2022 and 2024, significantly outstripping the 8% increase in average
maintenance loan over the same period.
University still remains an attractive option for many, especially those at higher-tariff institutions studying high-value degrees, where the graduate premium is more robust. (Graduates earned £1.36 for every £1 earned by non-graduates in 2024, a drop from c.£1.50 seen on average between 2007-2019. Lifetime earnings are significantly higher for those who pursued STEM subjects, including medicine, law, and economics, particularly if studied at Russell Group universities).
The Empiric acquisition
The acquisition added 7,700 high quality beds that are 81% aligned with high-tariff universities (a strategic aim for the reasons covered above) and give Unite access to major Russell Group cities like Exeter and York. However, the Hello Student brand targets 2nd year, 3rd year and postgraduate students attractive to international students. The postgraduate international challenge is seen in the low 89% occupancy, which has deteriorated further since the deal closed and is the main reason behind the recent profit warning.
Empiric have noted a reduction in Chinese students due to geopolitical events and a trend of Chinese students shifting towards universities in Asia or elite high-tariff universities in the UK. Nottingham, Sheffield and Glasgow alone accounted for 5% of Empiric’s lost occupancy. Those cities also saw a wave of PBSA completions in 2024/25.
With everything that is happening, students are booking later. Empiric is said to have lacked the digital marketing reach and university nomination infrastructure that Unite possesses. Consequently, when the booking cycle slowed down, Empiric didn’t have the sales engine to chase late cycle applicants. The acquisition distraction would not have helped either. Hence the increase in asset sales. It’s not hard to imagine 2026/27 being a clean up year and momentum investors may not see immediate catalysts.
Unite management believe they got the company for a price that reflects the challenges. The Hello Student strategy brings an extended student lifecycle. There are cost synergies of £17m (up from £13.7m). Unite will leverage its best in class digital booking and maintenance platform and drive occupancy. TheReitStuff mentioned Unite has a Chinese platform for marketing to students while they’re still in China that Empiric didn’t have as an example of potential.
Unite will be able to squeeze more out of the Empiric assets as they migrate to the Unite high traffic booking system; leverage Unite’s university nomination relationships and sell off the properties with excess supply.
The most recent numbers
“68% reserved for 2026/27 (2025/26: 71%), reflecting more cautious booking trends…
Demand from strong university partners, with 55% of beds nominated for 2026/27 (2025/26: 59%)...
Targeting disposals of £300-400m p.a., £214 million completed in 2025 (Unite share: £142 million)...
Agreed disposal of St Pancras Way, London to USAF for £186 million (Unite share: £126 million)...
Initial £100 million share buyback programme underway and delivering attractive returns…
2026/27 income expected at lower end of range for 2-3% rental growth and 93-96% occupancy…
Empiric’s 2025/26 income below expectations ahead of integration to our platform…
Cost of debt expected to increase to 4.3% in 2026 (2025: 3.9%)...”
2026/27 income guidance
“Across the Empiric portfolio, 22% of rooms are now sold for the 2026/27 academic year. The slower sales performance reflects a delayed start to the sales cycle following a technology upgrade and the more cautious leasing behaviour seen in the Unite portfolio. Based on our initial assessment, we anticipate Empiric’s letting performance to be in line with our direct-let portfolio for the 2026/27 academic year. The full benefit of our sales platform to Empiric will be realised for the 2027/28 sales cycle.”
