A student housing rent roll is sold once a year, so a late practical completion is priced in lost academic years, not lost weeks.
Far more than the weeks suggest. On an illustrative 400-bed scheme earning £2,585,300 of stabilised NOI, opening 17 weeks late and rehousing the students who stay costs £2,224,777 of first-year NOI, 86.1 per cent of a full year. Releasing the bookings and reopening in January costs more, £2,763,377. A student rent roll is sold once a year, so a late practical completion loses most of an academic year, not a few weeks of rent.
Worked in full in Student Housing Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
An office or a shed that completes three months late loses three months of rent. A purpose-built student scheme does not, because its whole rent roll starts on the same weekend. Students book in spring and summer for tenancies that begin in September. When the building is not ready, the operator has two choices: keep the bookings and house every student somewhere else until the doors open, or release them and try to let the building from January to whoever is still looking. Both are expensive, and the second market is thin.
| Input | Value |
|---|---|
| Beds | 400 |
| Rent per bed-week | £185 |
| Tenancy length (weeks) | 51 |
| Stabilised occupancy (beds booked by August) | 95% (380) |
| Operating costs per bed per year (not incurred while the building is shut) | £2,500 |
| Alternative accommodation, per student-week | £320 |
| Compensation, per student per week of delay | £35 |
| January relet: occupancy, weeks, rent | 25%, 30, £165 |
| Net initial yield / discount rate | 5.25% / 7% |
On time, the scheme earns 380 × £185 × 51 = £3,585,300 of rent, less £1,000,000 of operating costs: NOI of £2,585,300, and a value of £49.2 million at a 5.25 per cent yield. Summer income is left out to keep the comparison clean.
Practical completion slips by 17 weeks, from the start of September to the turn of the year. The operator honours the contracts. On the assumption that the tenancy keeps rent running from the contracted start date (if it suspends rent until the doors open, the loss is larger), students keep paying the scheme's rent for the full 51 weeks, while the operator pays £320 a week for each student housed elsewhere and £35 a week in compensation. Not everyone stays: 80 per cent of the 380 accept, so 304 students remain and 76 walk away.
Rent = students staying × rent × 51 = 304 × 185 × 51 = £2,868,240
Rehousing = 304 × 17 × 320 = £1,653,760; compensation = 304 × 17 × 35 = £180,880
Operating costs = £1,000,000 × (52 − 17) / 52 = £673,077
Year-one NOI = 2,868,240 − 1,653,760 − 180,880 − 673,077 = £360,523
Excel: =B1*B2*51-B1*B3*320-B1*B3*35-1000000*(52-B3)/52, with B1 students staying, B2 rent, B3 weeks late.
Against the on-time NOI of £2,585,300, the loss is £2,224,777, or 86.1 per cent of a stabilised year. It breaks down into four pieces: £717,060 of rent from the 76 students who left, £1,653,760 of rehousing, £180,880 of compensation, less £326,923 of operating costs not incurred while the building was shut.
The alternative is to let every student go and market the building for the second semester. Mid-year demand comes from January starters, exchange students and those leaving bad lets. Assume a quarter of the beds, 100, let for 30 weeks at a discounted £165.
Rent = 100 × 165 × 30 = £495,000
Year-one NOI = 495,000 − 673,077 = −£178,077
The loss is £2,763,377, 106.9 per cent of a stabilised year, and £538,600 worse than rehousing. It also leaves a cohort of students and their parents telling next year's applicants that the scheme cancelled on them.
The decision reduces to one student. A booked student brings £185 × 51 = £9,435 of rent. Keeping them costs £320 + £35 = £355 for every week of delay. Before any January relet income, rehousing is worth it as long as the weeks of delay are fewer than 9,435 / 355 = 26.6 weeks. Over 17 weeks the rehousing bill is £6,035 a student, leaving £3,400 of each tenancy's rent still earned. Past about half an academic year, the operator is paying more to keep a student than the student pays.
| Weeks late | Students who stay | Rehousing and compensation | Year-one NOI | Loss vs on time | Loss % of NOI |
|---|---|---|---|---|---|
| 2 | 380 (100%) | £269,800 | £2,353,962 | £231,338 | 8.9% |
| 6 | 342 (90%) | £728,460 | £1,613,695 | £971,605 | 37.6% |
| 10 | 323 (85%) | £1,146,650 | £1,093,163 | £1,492,137 | 57.7% |
| 17 | 304 (80%) | £1,834,640 | £360,523 | £2,224,777 | 86.1% |
Even a two-week slip takes 8.9 per cent of the year, because all 380 students need somewhere to sleep on the first night. Six weeks takes more than a third. The cost is not linear in time: every extra week both adds rehousing and pushes more students to cancel, and a cancelled tenancy is a full year of rent gone. This is why a buyer of a student scheme under construction should test the long-stop date against the academic year, not the calendar, and why the booking pace work in forecasting occupancy from booking pace matters most in the summer a scheme opens.
A buyer or valuer who sees year-one NOI of £360,523 against a stabilised £2,585,300 sometimes divides the shortfall by the yield: £2,224,777 / 5.25% = £42.4 million, 86.1 per cent of the scheme's value. That treats a lost academic year as a permanent loss of income. It is not. From the second September the rent roll is sold again from scratch, as it is every year, and the scheme is back on its stabilised line if the reputation damage is contained.
The value effect is the present value of the lost income, taken here as falling at the end of year one: £2,224,777 / 1.07 = £2,079,231, about 4.2 per cent of the £49.2 million value. That is the figure to negotiate with, whether as a price chip on a forward purchase or as the liquidated damages a developer should be asked to cover. If the damages in the contract are a weekly sum sized like an office delay, they will cover a fraction of it. The scheme's own sensitivity to occupancy is set out in the break-even occupancy calculation, and the bed-week and RevPAB arithmetic behind a full rent roll is in the free workbook for this case.
Price a late student scheme in academic years. Work out the rehousing cost per student-week, compare it with one tenancy's rent to find the crossover, and expect a delay of a term to cost most of a year's NOI. Then value the hit as a one-off: discount it, do not capitalise it.
Compare one student's annual rent with the weekly cost of keeping them. In the illustrative case a student pays £9,435 for a 51-week tenancy and costs £355 a week to rehouse and compensate, so rehousing is worth it for any delay shorter than 26.6 weeks. Releasing the bookings and reopening in January loses £2,763,377 of NOI against £2,224,777 for rehousing over 17 weeks.
By the present value of the lost income, not by that loss capitalised at the yield. On the illustrative scheme worth £49.2 million at a 5.25 per cent yield, a £2,224,777 first-year loss discounted at 7 per cent is £2,079,231, or 4.2 per cent of value. Dividing the loss by the yield would suggest £42.4 million, which treats a one-off year as permanent.
Because every booked student needs a bed from the first day of term. A two-week slip on 380 booked beds costs £269,800 of alternative accommodation and compensation even if nobody cancels, offset by only two weeks of saved operating costs, for a net NOI loss of £231,338, 8.9 per cent of a stabilised year.
This article is one calculation from Student Housing Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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