Purpose Built Student Accommodation (PBSA) is a relatively new property asset class, but one which is attracting growing investor interest, given a rising student population and constraints on property supply.
An approaching demographic bulge in the number of 18-year-olds — combined with a tough economy persuading younger people to upskill — is forecast to underpin elevated demand for student accommodation for the foreseeable future.
UK undergraduates are increasingly turning to PBSA properties, which now account for over 34% of all student bedspaces, for a variety of reasons.
Post-pandemic, there is more demand for rooms with en-suite bathrooms for hygiene reasons, which PBSA flats generally offer.
Students are increasingly fans of the communal spaces such offered by PBSA to combat loneliness.
And today’s undergraduates are more demanding consumers than the previous generation – top quality Wi-Fi has become a standard expectation for many.
The growth in international student numbers also creates more demand for PBSAs, as according to Savills, international students are 60% more likely than UK undergraduates to choose to live in PBSA.
So, it should perhaps come as no surprise that investment in the UK’s PBSA sector hit a record £7.2bn in 2022, up 69% on 2021, and considerably higher than the previous long-term five-year average of £4.1bn a year, according to Knight Frank.
Knight Frank predicts that 95,000 new student bedrooms will be created in the PBSA by 2025.
Its research reveals there are 25,700 beds under construction for the 2023/24 academic year, with full planning permission granted for a further 69,500 beds.
But despite this robust delivery pipeline, rising build costs, inflation, labour shortages and planning policy mean that growing student numbers are outstripping future PBSA supply.
This structural supply and demand imbalance, widespread in most UK university cities, supports Knight Frank’s prediction that rental growth could exceed 5% for 2022/23.
Evidently, this is an area ripe for investment – but one which is not without its challenges.
That is why it is vital that mortgage brokers and their PBSA clients work with an experienced lender who understands this market and can help each project run as smoothly as possible.
