Recent reports on the outlook for purpose-built student accommodation in the UK have affirmed investor confidence in this sector, as 2021 demonstrated its ability to weather the aftermath of the pandemic better than most other real estate sectors.
Purpose-built student accommodation, or PBSA, usually consists of modern cluster flats or private studios and attached leisure facilities that private developers have built for students to live in.
The PBSA market in Britain is thriving, with investment and occupancy reaching record-breaking levels. Researchers predict that the value of the UK’s PBSA sector is expected to reach £72 billion in 2022, as demand in this sector continues to grow.
So, what is driving activity in this market, and what lies ahead for PBSA in the UK?
What is driving demand in the PBSA sector?
The UK’s rapidly expanding student population is the primary factor fuelling demand in the PBSA sector.
Despite the uncertainty surrounding coronavirus restrictions and the availability of in-person learning, there was an overall 11.6% growth in UK domestic applications in 2021. As a result, single-asset PBSA deals have ramped up to meet the growing need for facilities.
Alongside the post-pandemic return to typically high PBSA occupancy levels, the UK’s reputation as a leading higher education provider has continued to attract global students. International student applications have remained strong despite the past few years’ events, with international students more likely to live in PBSA than domestic students.
Developers design modern PBSA facilities to meet Gen Z student expectations for quality and technology in private and communal spaces, contributing to high retention rates. PBSA assets are also characteristically located in highly convenient and central locations, increasing the chances of high yields and capital growth.
Rent collection and occupancy levels have already proved remarkably resilient compared to other sectors, such as retail, which took a more significant hit to rent collections in the 2020/21 period. Additionally, most accommodation buildings have building management and security, providing fully managed investment assurances for investors. As a result, the blossoming PBSA market has broad appeal to developers and investors alike.
What is the outlook for the UK’s PBSA market?
The demand for PBSA across the UK is not likely to change. In England alone, 44.1% of the 18-year-old population applied to university courses in January 2022, and demographic experts predict that the number of 18-year-olds will grow significantly in the next decade.
The desire for in-person education and university experiences has remained strong in the wake of COVID-19, and most investors do not consider the rise of remote and online learning a real threat to this market. If student satisfaction rates remain elevated compared to other available accommodation options, PBSA’s market share will rise.
Yields have remained stable throughout the turbulence of the past few years, and plenty of new investors have entered the market. In 2020, 60% of investment volume came from overseas investors, demonstrating widespread confidence in the UK’s higher education sector and PBSA’s ability to deliver stable returns. As such, PBSA assets are expected to maintain a solid long-term position in the alternative real estate market and offer attractive returns for investors.
Rynda Student Living is an investment platform that focuses on high-quality PBSA and works alongside several leading London-based investors with a significant appetite for gaining exposure to the exciting student living accommodation markets. Contact us to discuss our real estate investment services for this flourishing market.