Who's afraid of the big, bad MOOC?

Is technology friend or foe for student accommodation investors?

We can all agree on one thing: from the perspective of young people in the United Kingdom, the decision whether to go to university has become a lot more complicated in recent years. Tuition fees in England and Wales for UK and EU students are more than £9,000 (€10,076) per year — three times the level of five years ago. Annual interest rates on student loans have also increased sharply to more than 6 percent and rents for student accommodation are not getting any cheaper.

From the perspective of the large body of overseas students, there have been other influences as well. For students from outside the EU, there are widespread reports that securing a visa to study in the United Kingdom has become a more tortuous process. Brexit has also introduced a new dynamic. Where EU students are currently able to study in the United Kingdom for the same fees as domestic students, in the longer term they may need to pay fees in line with those for students from outside the EU; these are up to three times higher for some courses.

Technology brings its own challenges

So students from both the United Kingdom and overseas are already facing a number of challenges. At the same time, the use of technology in education is moving on rapidly. Is higher education poised for a technology shock? Will undergraduates from all over the world be “attending” university from the comfort of their family homes, with VR headsets facilitating virtual lab sessions or seminars? Will it be the new normal to interact with peers through screens and speakers? Working toward a degree through distance learning would save on living costs, in addition to (somewhat) cheaper fees.

Technology is rapidly moving to a point where much of this will be feasible. Arguably, this creates a huge risk for investors in one of the most popular areas of the real estate market in recent years: student accommodation. But is it what students want, or need? We don’t believe the hype — at least not all of it.

The concept of distance learning is well established. MOOCs (Massive Open Online Courses) caused a great deal of excitement when they were popularised in the United States several years ago. But it is worth stressing that MOOCs and high quality distance learning are not the same thing. MOOCs originated in the computer science department at Stanford in 2012. They sought to provide free access to knowledge worldwide, but with little interaction between teacher and students, or among students. High-quality distance learning (DL) has existed for many years as a genuine alternative to onsite education, aiming to provide an equally credible academic experience.

The largest UK institution offering distance courses is the Open University, but more recently it has become common for a range of universities to offer some of their degrees in this way. At the moment, the vast majority of these are taught postgraduate courses; the average distance learner is in their late 30s and already in full-time work, choosing to study part-time. They will typically already possess the discipline to learn in their own time from completing their first degree, and the key focus will be on gaining additional skills and accreditation rather than on socialising and the “university experience”. DL courses also tend to be restricted to subjects that can be delivered without the need for an onsite presence, such as business studies, mathematics or computer science.

So, as investors in student accommodation, should we be afraid of the big, bad MOOC? Can we imagine this spreading to other subjects, and to younger users? When asked the question recently of whether she would consider DL, one of our student interns was stumped. She went on to explain that the routine of travelling to lectures, seminars or to meet with friends at the library plays a major role in supporting her academic work.

This is strongly supported by educators themselves; in our discussions with academic staff, there is a near-universal view that the majority of undergraduate entrants at 18 years old have not yet gained the self-management skills to succeed academically when left to their own devices. Survey evidence backs this as well. Undergraduates express a desire for frequent interaction with lecturers and classmates alike when questioned through experience surveys. More face-time with tutors and more group sessions as opposed to mass lectures are among the most frequently cited requirements.

An unforgettable experience

It would also be a mistake to gloss over something that is near impossible to replicate online: the university social experience. As a deputy vice-chancellor at a leading UK university said to me recently: “young people want to be with other young people”. Being independent, living away from parents and making a home with housemates is a rite of passage for the majority of undergraduates.

Analysis conducted on the responses to the Times Higher Education’s Annual Student Experience Survey demonstrated this powerfully; it was found that of the nine factors most closely linked to whether a student would recommend their university, six related to the broader social and cultural environment. Only three related directly to purely academic aspects.

That said, we must not downplay the progress in digital and virtual course delivery over the last decade. There is a growing role for the “technology enabled campus” and this will have implications for how we view our student accommodation investments. Blended courses (mixing digital and physical content) and flipped learning (watching lectures at home and then working through material in face-to face seminars) are becoming increasingly ubiquitous.

At Hertfordshire University, some subjects have all of their lectures available as recordings. The new campus for Northampton University, currently under construction, plans to have only smaller teaching, without any of the traditional large lecture theatres. The University of Keele already has a virtual simulation of a hospital environment for nursing students. The lines between “traditional course content” and MOOCs are also becoming increasingly blurred, with Leeds University now accepting a MOOCs module as valid for credits.

With technology evolving daily, in the foreseeable future there will be few subjects that cannot, from a purely logistical perspective, be studied remotely. Our research indicates that just 9 percent of students are currently enrolled on courses where digital delivery is likely to be very difficult even into the long term, ie. those where hands-on contact with other people or with materials will always be an inevitable part of the curriculum (eg. medicine, physiotherapy, many of the creative arts).

Knowledge leads to resilience

This starts to lead to some practical implications for investors. If pure knowledge acquisition will increasingly be able to be done online, then universities will vary in their ability to prosper in the new environment; in short, there will be winners and losers. While it will always be important to recognise the individual circumstances of each university, at a high level we see the following themes as indicators of resilience:

  1. A focus on undergraduate teaching and/ or postgraduate courses that focus on research, which we view as less susceptible to being substituted by distance learning.
  2. A bias toward courses with a high content of hands-on/face-to-face work that cannot be replicated in virtual environments.
  3. A state-of-the-art “digital campus”, which makes the most of using technology to enhance the onsite learning experience. Legal & General has invested into Newcastle Science Central, which is a prime example of this; the university on the site lives and breathes technology but this is used to enhance the onsite experience, not to drive people away.
  4. Offering a great non-academic experience. This includes so many different elements, from a quality academic environment, good accommodation and transport infrastructure through to strong cultural, social and sporting opportunities.

Student accommodation has attracted a great deal of investment capital in recent years. Many of the dynamics, from a needs-basis to demand through to the imperative to grow human capital in a more challenging demographic environment, remain in place.

But smart investors will recognise that education,like many other sectors, is being changed structurally by technology. Investors should be looking at the built environment surrounding each asset. It is about creating communities where students will want to live, work and play. We believe that technology can help people connect, not just take people away from each other. However, we need to make sure that our real estate investments support this infrastructure, which will in turn create long-term value for our investments.