SPECIAL FEATURE: Opportunity knocks for PBSA

By Eliot Kaye, Managing Director – Puma Property Finance

My 18-year old daughter is not known in our house as an early riser. However, a few weeks ago, she was up at the crack of dawn, poised to receive her mock A-level results. I don’t doubt that scene was repeated in homes the length and breadth of the country as the next generation of students eagerly awaited the most important milestone to date on their journey to university. Of course, at this stage, the focus is on which university they will be going to but that focus quickly, and rightly, moves on to where they will live as a student.

When I was at university back in the dark ages, student accommodation for most meant mouldy rooms in delipidated bed-sits with unscrupulous landlords who would take a month to send someone to fix a broken boiler. Whilst the days of the classic “student digs” HMO may not be completely behind us, we now live in a world where purpose-built student accommodation (“PBSA”) is the choice of most when it comes to living at university.

As a funder of new PBSA developments across the United Kingdom, this is a traditionally busy time for us as it is the key period of the year when schemes that are targeting a September 2024 opening are being readied for start on site. And we are particularly bullish right now for a number of reasons.

It is well known that enrolment into higher education, particularly full-time university, increases during periods of economic uncertainty. Whatever the length and depth of the current recession, the overall sentiment is driving more and more applications to the UK – indeed, the overall entry rate to university for UK 18-year-olds is 37.5% this year, the second highest on record. In simple terms, more students equals need for more PBSA¹. Add to that, the results of law firm Shoosmiths recent roundtable which noted that a shortage of 450,000 beds for students is anticipated by 2025 (a huge increase from the approximate 200,000 in 2021, and that despite a total of £4.4billion invested into the sector that year).²

But it’s not just the strong supply/demand dynamics that bode well for developers of PBSA. Whilst we remain in uncertain economic times, there is no doubt that the extreme volatility seen during 2022 seems to have stabilised to a great extent. All developers can be more certain of both construction costs (following a sustained period of price inflation even pre-dating the Ukraine War) and finance cost (as interest rates are now settling at manageable levels).

Like most real estate asset classes, PBSA is location sensitive and the supply/demand dynamics are by no means uniform across the more than 160 universities and higher education institutions currently in the United Kingdom. Certain university towns have a greater imbalance and, in any event, the micro-location within that town is all important – rolling out of bed and into lectures is a lot easier if you are around the corner rather than out in the sticks!

Moreover, you need to make sure that you are building the right product for the location: quality, location, affordability, even sustainability, of their accommodation can be a big determining factor for students. Amenities such as gyms and access to outdoor space are coming to the forefront with a recent survey of 1000 students from Here! Student Living, finding that almost half viewed easy access to a gym as being the ‘most important’ facility in their PBSA. And the drive towards sustainability will also play a major role in new developments, both to keep costs down and to attract the growing number of students for whom ESG credentials are a key determining factor in choice of accommodation.

With student numbers at record highs, and supply of attractive accommodation in desirable university towns and cities still out of step with demand, it doesn’t take a university degree to understand that there are real opportunities for developers to bring new projects to market, capitalising on strong investor sentiment.

Kindly shared by Eliot Kaye, Managing Director at Puma Property Finance.