Watkin Jones' low-risk business model

The core business is building student accommodation, but the way developments are funded is different from other providers of purpose-built premises. Watkin Jones operates a capital-light model, whereby it takes control of a project from land procurement all the way through to the completed building, but forward sells the development at an early stage, collecting payments all the way to the point of delivery. While Watkin Jones still has to deliver projects on time and on budget, the model substantially reduces the overall development risk and need for capital.

Demand for bespoke student accommodation is high. Currently only 550,000 students out of a total of 1.8m live on a university campus or in purpose-built accommodation. And appetite for a university education shows little sign of diminishing, with 725,000 applications in 2016 for 540,000 university places. There was initially some concern about how Brexit might affect demand from the rest of the European Union (EU), but EU students make up a tiny percentage of total student numbers, and sterling's weakness makes UK universities look better value.

Watkin Jones' profit was up 27 per cent at the half-year stage to March 2017 and sales are expected to be stronger in the second half. Margins rose from 16.1 per cent to 21.8 per cent, helped by a full six-month contribution from recently acquired Fresh Student Living, which specialises in the operational management of purpose-built student accommodation. In 2016 it had 8,310 beds under management, but this is expected to increase to 12,117 in 2017 and contracts are in place for this to rise to 19,532 by 2020.

And there is plenty of work in the pipeline. Having sold seven developments since October 2016, a further nine are in legal negotiations for a forward sale. There are a total of 31 sites in the pipeline. What's more, there is plenty of earnings visibility, with two sites not scheduled to be delivered until 2020.

As a logical extension, Watkin Jones has applied the same business model to the private rental sector, where it is growing its build-to-rent development pipeline. One site has been secured in Sutton, south London, and a further two sites are progressing through planning in Belfast and Leicester. Three further sites are in negotiation for development, and all six are targeted for delivery between 2019 and 2021. This part of the market is still relatively small, but with institutional money looking for a place to work.