Investing in Purpose-Built Student Accommodation (PBSA).

Purpose-built student accommodation, more commonly known as PBSA, is a popular investment strategy for investors and property developers looking to allocate funds into profitable, yet secure investments.

Investment in PBSA is one such option which can offer the potential for high returns, as well as long-term capital appreciation and low risk.

The student housing market is one of the most resilient markets in the world, continuing to show its counter-cyclical nature as student numbers continue to grow at record rates in UK university cities.

A report showed that in 2022 there was a record $7.2bn invested into the UK PBSA market, emphasising the appetite for growth in the UK’s higher education sector.

What is PBSA?

PBSA stands for Purpose-Built Student Accommodation. It refers to accommodation that has been specifically designed and built for students to live in while they are studying in UK university cities.

PBSA typically includes a range of facilities that cater to students’ needs, such as communal areas for socialising and studying, laundry facilities, and secure access.

This type of accommodation is usually located near the university campus, making it an attractive proposition for domestic students due to its convenience.

PBSA is often offered by private companies or investors who see an opportunity to provide high-quality, purpose-built accommodation to meet the rising student numbers.

PBSA is often delivered by private companies or investors to meet rising student numbers

A brief history of PBSA

The idea of dedicated student housing (PBSA) can be traced back to the early 1900s when some colleges started constructing dormitories as well as other forms of student living spaces on or in close proximity to their campuses.

However, the modern-day concept of PBSA began to take shape in the 1990s when private companies and investors saw an opportunity to provide high-quality, purpose-built accommodation to meet the growing demand from students.

Over the past two decades, PBSA has become an increasingly popular option for students, and the sector has grown rapidly as a result. According to a report by Knight Frank, the global PBSA market was worth around $65 billion in 2019, and it is expected to continue to grow in the coming years.

The growth of PBSA has been driven by a number of factors, including increasing demand from students for high-quality accommodation, the expansion of the higher education sector, and the availability of financing for developers and investors.

Additionally, the trend towards urbanisation and the desire of students to live in close proximity to campus and other amenities has also contributed to the growth of PBSA.

Benefits of investing in PBSA

A PBSA investment can offer a range of benefits for investors looking for higher yields and secure income streams compared to traditional buy-to-let investments.

From long-term returns to professional management, investing in PBSA can provide an attractive option for those seeking a profitable investment strategy.

High demand for purpose-built student property

The demand for purpose-built student accommodation (PBSA) has been increasing over the past decade, and it is expected to continue to grow in the coming years.

Several factors are driving this demand, including:

• Increased international student numbers: The number of international students studying at universities around the world has been increasing steadily over the past decade. International students often have different housing needs and preferences than domestic students, and they may require purpose-built student property that is specifically designed to meet their needs.
• Growing enrollment in higher education: Higher education enrollment has been growing steadily around the world, particularly in emerging economies. As more students enrol in universities, there is an increasing need for high-quality accommodation that can meet their needs.
• Shift towards urbanisation: There is a global trend towards urbanisation, with more people choosing to live in cities. As a result, there is a growing demand for housing in urban areas, particularly in university towns and cities.
• Shortage of quality housing: Most UK university cities suffer from a shortage of quality housing, particularly purpose-built student accommodation. This has created an opportunity for developers and investors to build and operate PBSA in these locations.
• Increasing focus on student experience: Universities are increasingly focused on providing a high-quality student experience, and this includes providing access to high-quality accommodation. Purpose-built student accommodation can help universities to attract and retain students by providing modern, well-equipped accommodation that meets their needs.

PBSA developments help local universities attract and retain student numbers

Stable and predictable rental income

One of the key benefits of PBSA in the investment market is the potential for stable, long-term income streams.

There are several reasons why student property like PBSA can provide a steady income stream:

• Longer rental periods: Rental income from student property like PBSA is typically contracted on a multi-year basis, with leases commonly ranging from one to three years, or even longer in some cases. This can help to provide a predictable and reliable source of income for investors in comparison to residential property.
• Pre-letting: Many PBSA developments are pre-let before construction is completed, which can help to provide a degree of certainty around rental income. This is particularly true for large-scale developments, which may be fully pre-let before construction has even been completed.
• Professional management: Most PBSA properties are managed by professional operators who have experience in managing student accommodation. This can help to ensure that rental income is maximised and that any issues with tenants or property maintenance are dealt with promptly.
• Stable tenant base: Students are a relatively stable tenant base, with low turnover rates. They are also less likely to default on rent than other types of tenants, as they often have a parent or guardian acting as a guarantor.

Strong potential for capital appreciation

Another benefit of investing in Purpose-Built Student Accommodation (PBSA) is the potential for capital growth. The value of PBSA properties can appreciate over time, providing investors with potential capital gains when the property is sold.

Increasing demand along with higher yields and strong rental growth presents a perfect environment for capital appreciation. Additionally, as more investors are drawn to PBSA, competition increases and this can also lead to increases in property values.

As well as potential capital gains through increasing property values, some investors may also benefit from PBSA development premiums which could increase the value of their investment over time.

Diversification of investment portfolio

Investing in the PBSA can also provide diversification benefits to a real estate investment portfolio, most notably in UK universities.

The first reason is due to the PBSA sector being non-cyclical. This means that strong demand is experienced even when there are changes in the wider economy.

The second reason is that PBSA operates in different market cycles. When compared with another real estate such as residential, research shows that the correlation between student property and other sectors is very low. This helps to reduce portfolio volatility which is beneficial for investors.

Finally, another key benefit is that the PBSA sector can help provide good geographical diversification. This protects against localised market fluctuations, which can help investors to spread their risk across different locations.

PBSA can provide portfolio diversification, alongside strong rental growth

PBSA investment – Is it worth it?

PBSA offers a range of benefits for investors, including high demand and stable rental income. With an increasing number of students around the world, the demand for quality accommodation is expected to increase, making PBSA investment an attractive opportunity.

The current demand for student property is outpacing future PBSA supply, underpinning rental growth as student numbers rise and try to find a place to live. Applications are flooding in faster than additional PBSA space can be created, proving that the market is in a demand imbalance with no signs of slowing down.

PBSA also provides stable and predictable income. Students typically sign tenancy agreements for the academic year, which provides investors with a reliable source of rental income. Furthermore, PBSA has a lower vacancy rate compared to other types of residential properties due to the high demand for student housing.

Moreover, investing in PBSA can also help diversify an investment portfolio. PBSA is an alternative investment option that is not directly correlated with other traditional asset classes, such as stocks and bonds. This means that investing in PBSA can help to reduce overall portfolio risk and potentially increase returns.

Overall, investing in PBSA can be a worthwhile opportunity. Unlike other real estate vehicles, investor appetite remains undeterred in the student property sector, thanks to the benefits mentioned above of this asset class. PBSA also provides good capital appreciation potential over time and can help diversify an investment portfolio.

As such, it is well worth considering for investors looking to capitalise on the growing need for student bed spaces within the sector.

RG Group – Purpose-Built Student Accommodation Specialists

At RG Group, we are experts in PBSA development and construction. Our team of experienced professionals have a deep understanding of the student accommodation sector and can advise you on every step of the journey.

We have a proven track record with both domestic and overseas investors to deliver your PBSA project developments.

Contact us today to discuss your investment needs and find out why investing in PBSA may be the perfect option for you.