Scottish universities look to upgrade in bid to attract students

At a time when property investment in Scotland appears to have slowed, one sector is speeding up its rate of activity: the university sector.

Higher education establishments across Scotland are pouring hundreds of millions of pounds into property as they look to expand their campuses and improve their learning facilities. The University of Glasgow’s investment programme amounts to £550m, the University of the West of Scotland’s (UWS’s) is £80m, Strathclyde University is about to open a £33m sports and health building - and the list goes on.

These new buildings will benefit students, institutions and their respective local economies. But why against a backdrop of economic uncertainty are they choosing to invest now?

And what will the impact be on the wider property sector?

The UWS, along with development partner HFD Group and the local authority South Lanarkshire Council, is investing £80m in a new 235,000 sq ft campus two miles up the road from its current site in Hamilton.

One of the reasons for the investment, says UWS’s director of strategic planning and development Marcus Ross, is the increasingly competitive higher education environment. Universities fear being left behind, both by other universities and secondary schools.

“If universities don’t modernise and update their estate, then students will be coming in to learn in an environment that is rather historical compared with where they’ve come from,” says Ross. “Universities don’t have a God-given right to exist. If you don’t move forward and modernise there’s nothing to say that you will be here tomorrow. Folks are alive to that.”

Another reason - and one seen across Scotland - is that universities are moving towards a new way of learning that is more collaborative and flexible. The days when a professor would sit at the front of the class and talk at the students are nearly over, says Ross, and modern teaching methods have different space requirements.

“Lecture theatres probably haven’t changed for many years. Now, we’re looking at new models of learning and teaching,” he explains. “That demands a different form in your estate: more flexible spaces; spaces you can use in different ways. Every space in our new campus is a learning space and we keep it pretty flexible.”

Experts from the property sector say that universities are also becoming increasingly commercially savvy, allowing them to embark on more ambitious projects.

Craig Bridges, Scottish regional development director at Graham Construction, which is currently building projects for five separate universities, says: “They talk about their students more like customers now. Students are very discerning about what they want and they want to make sure it’s not just a learning experience - it’s also a social experience.”

As part of that, there has been a trend over the past five years for universities to build their own student accommodation. Whereas previously universities allowed rental money to go to private landlords, now “they all seem to be investing in [student accommodation] because they see the upside in the income stream”, Bridges says.

Canny speculation

It is a thought echoed by Jonathan Seddon, head of the commercial real estate team at law firm Morton Fraser. He says universities in particular are “much smarter” at using their property estates to generate income that they can then invest back into their campuses.

“They’ve got property all over the place, historic properties, so they’ll sell off the ones they don’t need,” says Seddon. “They might lease the ones they can get a good return on and they might joint venture with developers to build student accommodation. Instead of that estate just sitting there, they’re making it work for them.”

That more shrewd approach is in evidence at UWS. Where previously the university funded expansion through the Scottish Funding Council, the Scottish government’s university funding body, now they are looking to enter joint ventures with developers and use their existing estates to generate more capital, Ross says.

“This is done through us working with a local authority and the developer,” he says. “The local authority will take the head lease. We’ve worked with the developer and there will be a leaseback to the university. We’re investing capital in terms of some of the fit-outs.”

Another reason universities are increasingly looking to invest is the availability of finance - they can borrow on favourable terms to fund their expansion, says Bruce Patrick, director of UK investment at Savills. The agent is advising the University of Glasgow on perhaps the most ambitious Scottish university expansion to date, which will see it invest £550m in a campus in the West End of the city, building more than 1m sq ft of new academic space.

“They’re able to go off and secure loans and bonds from investors at very low rates,” says Patrick. “The investment market sees them as having good covenants.”

Campus capitalisation

These new developments are set to have a huge impact on the property sector. UWS will move out of its old campus, which it will then sell off in chunks to developers. “There are various parcels of land and it’s likely we’ll identify a development partner and divest ourselves of the assets,” Ross says.

At Glasgow, there will be 156,100 sq ft of residential space, 134,600 sq ft of hotel space and 5,350 sq ft of retail and leisure space, alongside the new university buildings.

“There’s a plot of land earmarked for a major mixed-use development opportunity,” Patrick says. “It’s likely there will be an opportunity for somebody to come in and buy an interest in a good-sized site there and develop, either with the university or after a straight land sale.”

The effects of the development will also be felt more indirectly by the industry. Part of the aim of the new campuses at Glasgow is to allow the university to increase student numbers, particularly among postgraduates and overseas students, who pay higher fees. Boosting those numbers is good for the local economy, in addition to the thousands of jobs that the university already provides.

“Universities are acting almost like how shopping centre developments used to act 20 years ago in terms of their catalytic regeneration effects,” Patrick says. “The University of Glasgow’s gross value added is measured in the billions of pounds. It’s a massive economic generator for the West End of the city, so universities’ impact on regional cities is enormous.”

Morton Fraser’s Seddon adds that the additional students, particularly international ones, are a massive boost to local economies. “My offices are right next to Edinburgh University,” he says.

“I’m a partner in a successful law firm and when I go to Starbucks I’ll go for a basic tall filter coffee. These students will go in for the £4 or £5 grande mochas, they’ll drink in wine bars, they’ll go to the gym across the road. Gone are the days when they were prancing round in Doc Martens and baggy jeans, scrimping and saving - they’re spending lots of money.”

That, in turn, helps the property industry.

“If you have more students in an area, you’re going to need purpose-built student accommodation, more restaurants, more gyms and more pubs. So there will be new developments and refurbishments to provide these areas that feed off the money these students are willing to spend.”

Brexit effect

The only perceived cloud on the horizon for universities is Brexit and what that means for EU student numbers.

However, because many of the overseas students - and often the highest-paying ones - are coming from outside Europe, Brexit may be a “red herring”, according to Seddon. “There’s nervousness, but I don’t think it’s a big factor. The more the big players think it through, the more confident they are,” he says.

Confidence is the key word: universities are currently more willing than ever to invest in their estates. This new commercial focus is seeing them build more, invest more and create more partnerships with the property industry.

The future benefits for the property sector, both direct and indirect, are clear. If ever there was time for developers and investors to generate work off the back of university expansions, it is now.

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