PBSA: Ripe for landlord investment

Marc Callaghan, Head of Specialist Finance, InterBay, part of OSB Group

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. The number of UK students embarking on degree courses has hit record highs of over 600,000 every year since 2020, and is set to increase further over the next five to 10 years. 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.

International student numbers are also expected to rise, building on record volumes in 2022/2023, when one in 10 undergraduates in the UK came from outside the EU. The increase may well be further driven by the weakening pound, making studying in the UK more attractive to overseas students.

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 wifi and on-site gyms have become standard expectations for many.

The growth in international student numbers also creates more demand for PBSAs. Overseas undergraduates like the security of being able to book their accommodation online and in advance, rather than doing the rounds of HMOs and student houses once they arrive. They also like to stay put in the same flat for the duration of their course, rather than moving every year. 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. At InterBay we have significant expertise in the PBSA sector, having worked closely with some of the UK’s largest providers of student accommodation, such as KexGill Group, which developed the University Quarters in Hull and Nottingham Trent, for example. As a specialist lender, we understand the importance of a co-ordinated approach to each individual case. Our expert team of BDMs and underwriters can liaise closely with the broker, the borrower, the valuer and the solicitor at every stage of the journey to deliver the best and most efficient outcomes for smaller investments and multimillion pound deals alike.

This article first appeared in BTL Insider.