PBSA – A 2018 insight to the student market
What makes Purpose-Built Student Accommodation (PBSA) the world asset class that it became in 2015 and continues to be as we enter 2018.
Due to the current UK housing crisis, PBSA is strongly backed by the government. In March 2016 the government introduced an increase on secondary/buy-to-let property purchases, this was to partway combat the house crisis issue as residential property was being snapped up by seasoned landlords for buy-to-let purposes and the problem was escalating – the predicted shortage of UK homes was a staggering 1.8m by 2025.
For this reason the government whole-heartedly support the development of PBSA as it is not deemed as residential property but also tackles the other shortage issue of having only 24% of students housed in PBSA, leaving the vast majority in sub-standard accommodation which are likely in run down areas and a far distance from the university campuses.
There is a huge under-supply across many UK towns, not the well-known cities such as London, Manchester and Liverpool where there is sufficient supply of plus 40%, but towns such as Stoke with only 22% supply or Preston with only 17% supply.
What happened in 2015 I hear you say: what turned the world of PBSA on its head in 2015? Simply national intake restrictions were removed completely, meaning higher education institutions can now accept as many students as they want. Impressively the UK is the second most popular location for overseas student which has resulted in record student intake numbers for the last four years in a row and growth shows no signs of slowing down. With such admiration the UK attracted a huge overseas intake of students seeking an English language education and with the weakened sterling it makes it more attractive and affordable for overseas students’ and their parents alike.
It was reported that in 2017, 505,680 new students were accepted and for the 5th consecutive year a record number of non-EU students applied.
Investor appetite remains strong for the nation’s best performing asset class; what wonderful insight from the 2017 UK Student Housing Report by global real estate service provider, Savills. It is predicted this year that £5.3bn will be sunk into Purpose-Built Student Accommodation, compared to £4.5bn last year and a record £6bn in 2015.
In 2016 the sector saw a boost from international investors, who’s market share increased to 64% which was a 29% rise from 2015. Savills have quoted that this is a huge vote of confidence in the sector. With overseas investment virtually doubling, it highlights the strong reputation of UK PBSA and post the 2016 Brexit referendum emphasises its resilience.
The Guardian last month reported that demand for investment grows despite worries that Brexit might cut number of high-spending foreign students coming to UK. Some of the world’s richest people and sovereign wealth funds are turning their attention to student housing, with the increasingly luxurious and expensive purpose-built accommodation becoming regarded as a must-have part of their investment portfolio. Read the full article
James Pullman, Head of Student Property, Knight Frank “They have seen how much others have made from student housing and want to join them,” Pullan said. “More than 70% of investment is coming from overseas buyers, from sovereign wealth funds and ultra-high net worth individuals [people with invest-able assets of more than $30m] and private equity.”