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Real Estate -
Why the Purpose Built Student Accommodation (PBSA) market appeals to investors
In just a decade, PBSAs have gone from a fringe asset class to a £60 billion industry.
Now seen as a mature asset class, PBSAs are highly sought after due to the returns, which are outperforming some of the more traditional mainstream asset classes.
Resilience of PBSA as an investment
Surprisingly, despite a turbulent year due to the pandemic, the sector has still performed well. As students become more discerning, the trend is for good quality schemes with amenities as opposed to shared houses. In addition, as planning consents become harder to obtain and build costs rise, limiting competition, good quality schemes will continue to be in demand. Returns for investors are better and more stable when compared to other asset classes.
Increasing demand for PBSA
There are many attractive elements to the PBSA sector as an investment. In general, the student population numbers increase each year, with an increase of 5.4% in acceptances for undergraduate places in 2020/2021 and a further increase of 8.5% in applications for 2021/2022, according to UCAS. There has also been an increase of 17.1% in non-EU international student applications for 2021/2022 despite the continuing international travel uncertainty.
Currently investors are targeting locations with multiple Higher Education institutions which are seen to be growing in student numbers. The universities which are expanding are strong in science, technology, engineering, and mathematics (STEM) courses with proven links to industry and a track record of employability. This focus is expected to continue going forward, as almost every industry and all aspects of lives will have an increasing reliance on innovation from these four STEM areas.
Investing in PBSA: The Future
The PBSA sector continues to remain resilient and have strong investor demand despite the global pandemic restricting travel and forcing educational establishments to switch to online learning. Good quality assets are snapped up when they come onto the market; a recent example of this being the portfolio sold by Unite for £132.5m comprising of 2,281 beds in 8 properties across Birmingham, Manchester, Wolverhampton, Exeter, and Coventry. The fundamentals remain positive for this sector with a gradual increase in population alongside expected growth in university applications; currently (and increasingly likely going forwards) a difficult employment market which is pushing more young people into studying; and universities having adapted to provide safe learning environments. In addition, long term steady returns appeal to investors as yields remain more attractive than some traditional asset classes.
At Arbuthnot Latham, we continue to have appetite to lend against student accommodation in certain locations where there is continued high demand and to experienced Borrowers whether a completed development or where it is being developed and held as an investment asset following stabilisation.
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