There has been a meteoric rise in demand for Higher Education in the United Kingdom, which has in turn created a rise in the development of student accommodation. Up until recently, universities provided their own student accommodation, however, these institutions are struggling to keep up with the increasingly high demand, and are therefore having to turn to the private sector.
In the UK alone, the Purpose Built Student Accommodation (PBSA) market saw a total investment of £7.2 billion, up 69% year – on year, and notably higher than the long-term average of £4.1billion over the previous five years (Knight Frank, 2023).
Below are some additional key facts regarding the Purpose Built Student Accommodation Market (Knight Frank, 2023):
• 263,000 forecast of additional full-time undergraduates between now and 2030
• 95,000 estimated number of new bed spaces in the planning pipeline
• 6% average rental growth in 2021/22
There are a number of reasons why PBSA has flourished, firstly, demand has escalated from 50,000 undergraduate students in 1970, to 350,000 in 2011 (Comaware, 2019). Universities now enter into nomination agreements with the PBSA providers, whereby they reserve a certain number of beds for their students guaranteeing a minimum rental income. This brings with it a level of financial burden on the universities, in turn creating an incentive for them to promote that accommodation, ensuring maximum bed occupancy, providing yet another advantage for PBSA providers. Secondly, PBSA has developed major financial backing from large, highly experienced capitalised parties, including Singapore’s sovereign wealth fund (Savills, 2019). Thirdly, when tuition fees were raised in 2012, families were more willing to pay for accommodation, as it did not seem so expensive compared to the high tuition fees. Lastly, one of the major reasons why PBSA has been so successful, is the security of rental income, with students paying steady rental payments from September through to July.
However with the possible risk of oversaturation in certain cities looming, do developers now need to work out, what the next step is in order to maintain this momentum? There have been ideas such as re-branding co-existing buildings and possibly investigating the concept of co-hybridisation models.
The PBSA market is forecast to have another strong year in 2023. In CBRE’s most recent PBSA report they wrote “Historically, recessions have resulted in additional demand for higher education. International student numbers will also continue to grow, building on a record volume in 2022.” They go on to explain this is due to the incredibly strong reputation the United Kingdom has for Higher Education. Demand will further be driven by the weakening of the pound, making studying in the UK more attractive.
CBRE have stated “because of increased taxation and further regulation, the supply of Houses in Multiple Occupation for students is falling, which will boost demand for purpose-built accommodation.” All of this, including record high occupancy levels means the fundamentals according to CBRE have “never been better” and the prospect of high total returns led by strong rental growth, will continue to drive the PBSA investment in 2023 (CBRE,2023).
- Knight Frank Student Property Report 2023
Available at: https://www.knightfrank.com/research/report-library/uk-student-housing-2023-9846.aspx
- Comaware (2019) The Growth of the Purpose Built Student Accommodation Sector
Available at: https://comaware.net/2019/02/10/top-dollar-digs-the-growth-of-thepurpose-built-student-accommodation-sector/
- Savills (2019) Global Student Housing Investment Global student housing investment
Available at: http://pdf.euro.savills.co.uk/global-research/global-studenthousing-investment-2019.pdf
- CBRE UK Real Estate Market Outlook 2023
Available at: https://www.cbre.com/insights/books/uk-real-estate-market-outlook-2023/student-accommodation