The Purpose Built Student Accommodation (PBSA) sector has not had an easy ride over the last 18 months, but despite the understandable blip caused by the pandemic, the outlook for the medium to long term remains positive for an asset class that has established itself in its own right. However, if the sector is to continue to grow understanding local conditions is even more important than ever.
Student Numbers Continue To Grow
This time last year, I seemed to be constantly writing articles to disprove a narrative that the sector was in trouble or that the 'bubble had burst' as a result of the pandemic and its impact on off-campus learning, university insolvencies and the future international student numbers. As we now approach the start of a new academic year, such concerns have been consigned to history as a temporary disruption in a sector that continues to grow. At a national level the UCAS data supports this:
Overall number of students accepting a place are up 8% year on year
Non-EU acceptances are up 9% year on year
Chinese acceptances are up 7% and Indian applications up 30% year on year
41% of UK 18 year olds have applied for university the coming academic year; the highest on record
The Impact On The PBSA Sector
From a place where there has been concern regarding student numbers, there has in the last couple of weeks been a number of universities highlighting the challenge of accommodation shortages. The University of Bristol has gone as far as to offer cash incentives for students to defer their place for a year because of this very issue. Nottingham Council have recently stated that even with the c.7000 beds that are in the pipeline, a further 7000 beds are required by 2024/25 to meet the expansion plans of the two universities in the city.
Student acceptances for the coming academic year does demonstrate a clear trend; higher tariff universities are the only group achieving growth in student numbers (up 4% year on year) compared to medium tariff (down 3% year on year) and lower tariff (down 1% year on year) universities. An ever, growing chasm gives cause for debate of the future viability of the overall UK university landscape, but for PBSA investors and operators it provides a seemingly increased certainty that such locations, that typically also attract the highest non-EU students, remain a good hunting ground for new schemes.
The PBSA sector itself has been shown to be increasingly active. Whilst total spend is down year on year, skewed by Blackstone's £4.66bn acquisition of IQ's portfolio, Knight Frank have reported that transaction volume is up 47% year on year and more significantly 4% up on 2019. This will be, of course, music to the ears of investors and operators within the sector. However, the viability and success and future schemes are not determined by the national picture, rather the local market where the scheme is based.
Assessing Local Market Conditions
Understanding these local conditions is more crucial than ever. Firstly, a simple bed-to-student ratio in the particular location is not sufficient. I often see investors quote statistics saying that, for example, 74% of students in a particular city don't currently have access to purpose built student accommodation; true, but this makes the assumption that all students would want to or could afford to live in such accommodation. It's a bit like Aston Martin saying that they are going to choose their next sales showroom location based on where the most drivers live regardless of the local demographics. It simply doesn't work; a more granular approach is required.
Such an approach should lead investors to investigate the local competition and pipeline of schemes. The turnover of stock, both from university estates and that of 1st generation PBSA schemes needs to be considered. Whilst the rise in Non-EU students is to the benefit of specific location such as Edinburgh, the crash in EU acceptances (down by a huge 59% year on year) due to the impact of Brexit will have a detrimental effect on specific locations. Beyond this, it then becomes about the micro-location; the immediate amenities, adjacency to the campus, transport links and proximity to the city centre.
How Can Montpelier Private Finance Help?
Montpelier Private Finance remains at the forefront of procuring market leading funding for our clients, whether it is development finance or term finance, both pre and post stabilisation. We have specialised in this sector for over 10 years and continue to work with both established and new funding partners to the benefit of our clients. If you wish to find out more, contact us here.