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Unite Group to build out £600m pipeline as profit rises

Unite Group is on track to develop almost 10,000 new bed spaces in the next three years and is open to working with new contractors, its managing director of property has said.

Speaking to Construction News before the developer released its half-year results, Richard Simpson said Unite would build out a £600m pipeline of almost 10,000 new student bed spaces over the next three years.

Despite using an “informal” framework of five to six main contractors, Mr Simpson insisted Unite is “open to other contractors and [expands its] frameworks quite quickly”.

Unite’s pre-tax profit increased by 18.9 per cent to £44.6m in the first six months of 2014, compared with £37.9m in the same period last year.

It is developing accommodation for almost 4,000 students in London, with an investment value of £310m, in its joint venture with the government of Singapore.

“We’re currently looking to acquire another four to five schemes and, assuming we get planning, they’ll be built for 2017”

Richard Simpson, Unite

It is also looking to expand its portfolio of regional developments and acquire new sites to develop accommodation for the start of the 2016/17 and 2017/18 academic years.

Mr Simpson said: “We’re targeting putting 5,000 new bed spaces outside London into our portfolio by September 2017, at roughly £250m of cost.

“This is on top of around 1,000 in Huddersfield and Bristol that were already committed.”

    Pipeline projects

  • Newcastle (606 beds) £31m; 2016 completion
  • Aberdeen (346 beds) £20m; 2016 completion
  • Edinburgh (550 beds) £38m; 2016 completion
  • Portsmouth (759 beds) £36m; 2016 completion
  • Stapleton House, Islington (862 beds) £85m; 2016 completion
  • Olympic Way, Wembley (696 beds) £48m; 2016 completion   

In the first half of 2014, Unite bought four regional development sites in Aberdeen, Edinburgh, Newcastle and Portsmouth, which will together deliver 2,261 bed spaces.

Having raised £96m from a share placing in March, Unite is looking to acquire additional sites to expand its regional portfolio.

“We’re currently looking to acquire another four to five schemes and, assuming we get planning, they’ll be built for 2017,” Mr Simpson said.

Contractors belonging to the developer’s framework include Balfour Beatty, RG Group, Shepherd Construction and Westfield. Unite also works with regional contractors “subject to where we are across the UK”.

“The contractors [we work with regularly] understand us as a business and know what we’re trying to achieve,” Mr Simpson said.

“Equally we know the companies we’re working with and can trust and rely on them to deliver our projects.”

“Students are more and more recognising the importance of good quality, well-located, well-managed, well-serviced accommodation”

Richard Simpson, Unite

However, Unite looks to bring new construction partners on board through partnering with them first on refurbishment and extension projects. It spends up to £40m a year on maintenance at its 130 properties across the country.

“Quite often we’ll work with a new relationship on refurbishments and extensions, which means it’s lower risk but it means we can start building that relationship to move on to some of the bigger construction sites.

“A year ago we’d never worked with McAleer and Rushe, and now we’re looking to form a long-term partnership with them,” he added.

As a client, Unite is looking for contractors who are “willing to put themselves in the shoes of the end user to deliver within the constraints of time, quality and cost”.

Mr Simpson said he was confident the student accommodation market would continue to expand, with the cap on student numbers set to be removed from 2015/16.

“Universities don’t go away in a recession, and students perhaps consider the importance of higher education even more so during that period of economic wobble.

“Land is very difficult to come by. To secure a student accommodation planning consent is getting significantly harder quite quickly”

Richard Simpson, Unite

“Students are more and more recognising the importance of good quality, well-located, well-managed, well-serviced accommodation. You don’t tend to get that readily in the private rented sector; you do tend to get it with purpose-built student accommodation,” he added.

In London, Mr Simpson said the greatest barrier to the delivery of schemes was land availability.

“Land is very difficult to come by, and land cost inflation has been outstripping build cost inflation quite significantly.

“On the planning side, the difficulty to secure a student accommodation planning consent is getting significantly harder quite quickly.

“A lot of boroughs previously relatively open are beginning to move their viewpoint because of the volume of planning consents that have been granted over the past few years.”

As a result, Unite is focusing on opportunities in London’s major regeneration areas, including Stratford and Wembley, where land is cheaper but transport infrastructure means students will be able to commute into the capital.

“The regeneration sites are fantastic. It feels quite vibrant and we have space to create the ideal residences in those areas. You’re also not under as much pressure from a rental perspective and can discount that heavily,” Mr Simpson said.

Many institutions are developing their own student accommodation to provide affordable rents for students in areas where the residential market is overheating.

Asked whether competition from universities was a deterrent for private developers such as Unite, Mr Simpson said: “We look at competition in terms of student accommodation, and we look at the private rented sector in a given town or city, the strength of the local economy because that affects rental levels.”

“Some universities still build out accommodation and rent it at a loss. But that’s increasingly a disappearing trend because universities are under pressure themselves to make money,” he added.

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