Purpose built student accommodation (PBSA) in the UK is the country’s golden goose. PBSA is housing built specifically by private developers for students to live in, usually taking the form of cluster flats (many rooms with shared kitchen and living areas), or private studios, both with attached leisure facilities and these days ‘cool’ added bonuses like cinemas, gyms, and games rooms.
It’s a classic case of demand and supply. There is an overwhelming demand for PBSA as across the UK, full-time student numbers outweigh current PBSA bed spaces by 3:1. While universities own 69% of the current PBSAs, they are increasingly relying on the private sector to cater to the increasing student numbers. Across the UK, around 30% of full-time first-year students live in private purpose-built student accommodation, up from 22% five years ago.
In 2018/19, the proportion of bed spaces provided by the commercial sector reached half of total stock, up from 39 per cent in 2012/13. Rental growth for purpose-built student accommodation (PBSA) increased by 2.26% for the 2018/19. James Pullen of Knight Frank predicted the development of at least 29,000 new beds across the UK in 2019 which would increase the sector’s market value to £53bn.
International students are the main market for PBSA as they require convenience as they enter a brand new city. Overseas students now make up around 14% of acceptances
through UCAS. Some 86,000 international students enrolled in UK universities in 2017/18 as undergrads according to HESA, many of whom are looking to PBSAs. Pullen explained: “[PBSAs] are mostly for international students and postgraduates, whose numbers have risen ten-fold in the last 10 to 15 years. They prefer ‘plug and play’ accommodation. They don’t want hassle, like sorting out their own council tax. Nor do their parents, who are paying.”
Not only is there huge demand, the investment is particularly stable despite a tumultuous economical and political climate in the UK. Due to the UK’s renowned higher education institutions, the PBSA market is not at the whim of macro-politics like Brexit and continues to be a steady and profitable investment. This has turned the heads of numerous international investors, particularly from Singapore and Dubai, who have been purchasing huge PBSA portfolios in the UK’s major cities.
This does not however mean that the market is saturated. In fact, these international investors are focusing on the main cities where there is guaranteed demand, overlooking the smaller UK cities where there is a low rate of PBSA development but an increasing demand for student housing. Importantly for PBSA investors, many local authorities now have Article 4 Directions in place to limit the amount of new HMO’s, largely as a result of concern over loss of family homes, meaning the demand for affordable PBSA is on the rise.
The UK is home to four of the top ten cities in Europe for student accommodation investment, according to Cushman & Wakefield’s latest research. London was the top investment destination in the world in 2018, receiving £1.9bn of investment, while Sheffield (£170m), Coventry (£160m) and Swansea (£103m) also feature at seventh, eighth and ninth respectively. According to Knight Frank’s 2018/19 report on student housing, the cities that have a low pipeline of new PBSA stock being developed despite a high demand include London, Brighton, Bath and Manchester, however high competing land values and policy restrictions result in barriers to development. Liverpool, Newcastle, and Leeds are strategic cities containing dual or multiple well-regarded universities, and large numbers of students. These markets have a historically high availability of development land, and have seen large amounts of PBSA development in recent years. Coventry, Portsmouth, and Swansea have had high levels of PBSA development in the past few years, relying on increases in student numbers for demand. Cardiff, Plymouth and Aberdeen have seen a boom in development but have not experienced matching growth in student demand, especially at the premium end of the market. Manchester, Birmingham, and Edinburgh have benefitted from increasing student numbers but a historically low number of PBSA developments, making them a core strategic investment opportunity. In Savills’ Spotlight on UK Student Housing 2017, 10 cities topped its development league table – Bath, Brighton, Bristol, Edinburgh, London, Manchester, Oxford and St Andrews, with Birmingham, Exeter, Guildford and Leeds strong newcomers to this top tier.
Sheffield, Liverpool, and Glasgow are highly saturated in terms of PBSA development according to StuRents’ data. There are ways to maximise return in those areas however, particularly by offering monthly rent payments to make it more affordable for less well-off students. Housing Hand works with accommodation partners to to allow tenants to pay rent in instalments to aid affordability.
As well as offering an installment plan like Housing Hand’s, investors in PBSA would be wise to offer more alcohol-free, quiet, and single-sex
According to a Unipol report. This comes as a surprise given that international students, on whom the private sector is so reliant, are substantially more likely to be interested in these types of accommodation options.
At the end of the day, the spotlight is now shining on affordability. Not only due to pressures from government to provide a level of affordability provisions, but because of access to an entire area of the market that doesn’t currently give PBSA a first look in favour of cheaper and sociable houses in multiple occupancy (HMO). Mid-prices cluster flats must be the way the sector moves forward to meet the growing demand from first-year students and to facilitate returning undergraduate demand
This article about “Purpose Built Student Accommodation” was written for Housing Hand – the Award-Winning UK Rent Guarantor Service by Neelam Tailor. For more information on how you can work with Housing Hand, visit housinghand.co.uk/guarantor-service-partner/ or call 02072052625 and select option 2.