As student flats go bankrupt, what are we going to do with bankrupt data centres?

Every economic bubble comes to an end eventually. Many of you will have found yourself asking 'when is another new-build student accommodation complex too many new-build student accommodation complexes?'. It appears we may have an answer.

There have been a string of bankruptcies of owners of 'PBSAs' (Purpose-build student accommodation), with one being the owner of the Marketgait Apartments development in Dundee which has just gone into insolvency. This has left students who thought they had secured a place to live for the year scrambling to find replacements right as term is starting.

To understand all of this it is worth understanding why there was a glut of PBSAs in the first place. People think of property development as a business which is about building property. This is the wrong way to think about it. Property development is an industry that trades in land and seeks to release the maximum value it can from land.

That is why it isn't primarily a building industry – if the most profitable use of land is to 'land bank' it (keep it undeveloped in the medium term) because they don't like the look of the returns they've getting on land purchases, that is what they’ll do - create an artificial shortage to boost the value of what they will build once they are happier with the return rate on the land.

What they do with the land to release its value is irrelevant to them; that is a simple question of market demand, and it goes through cycles. For a while every new development was a 'luxury apartment block'. Then there was a retail and hospitality boom. Then a prestigious office block boom. Then came the student accommodation blocks.

Those boomed because there was excess supply of retail, hospitality and office accommodation after the financial crisis of the late 2000s, but there was a seemingly constantly-expanding student market which the universities themselves had been persuaded to vacate.

In the 2000s a study from a major consulting firm advised universities to privatise their halls of residence and they all did, leading to the frenzy. It is not even just any form of student accommodation; this market is about high-wealth overseas students, offing luxury living with high-end facilities and generous rooms.

This voracious market was designed to extract as much wealth from students as possible. We started to see what this meant when universities forced students onto campus during Covid only to then lock them in their rooms. This was done under pressure from the private owners of student accommodation who otherwise stood to lose substantial income from empty buildings.

This was an utterly disgraceful affair which has been swept under the carpet. This is part of a pattern in the higher education sector where time and again we have had serious failures at universities with the people responsible for the failures protected and the cost of the failure pushed on to students and staff. There has been no reform of the governance model which has created what is increasingly looking like a catastrophe in higher education.

But a saturated market takes you to an inevitable crash in that market, and it seems that that has now started. This is no problem for the property developers who by this point have cashed out, with these properties now largely owned by the private equity market. Private equity will now wait for the next turn of the property wheel to enable them to extract the value from the land all over again.

This might involve demolition or extensive adaptation, but it will not happen until there is a new use for high-value land in city centres that releases the money the developers want to see.

None of this has anything to do with the strategic needs of universities or the real interests of students who are only cash cows in this grubby business. It has nothing to do with wider public benefit or the strategic needs of city centres. This is all driven purely by greed.

And now, if you are a property developer, you probably want to stay away from city centres. The big money has moved from student flats to data centres. Those too are a gold rush. Those too are predicated on a flaky and probably unsustainable financial case. And those too have already started to show distress with many planned schemes being cancelled as the finances don't stack up.

The problem is, if you can convert city centre student accommodation into flats, what do you do with a giant, bankrupt data centre stuck near homes in rural or 'rust belt' sites? The answer is that we are soon going to find out – even opencast coal mines had to have plans in place for when the asset was redundant. Data centres are the distilled essence of Thatcherism.