There are a number of factors that have got us to where we are today. Most notably, the explosion of student numbers from the 1990’s to present day, more than doubling during that period. This, combined with the lack of availability of larger properties that could operate as an HMO in the private rented sector (reduced by more than 30%) as the buy-to-let landlord exodus continues (under ever increasing regulation and ever decreasing returns) and you have an almost perfect storm for a lack of stock
It’s no secret that there has been a shortage in Purpose Built Student Accommodation (PBSA) for a number of years and this trend doesn’t appear to be changing course any time soon. Since 2018, the supply of PBSA has reduced year-on-year despite a rising student population. There are circa 150,000 units in the pipeline but with less than 40,000 of these in construction, the delivery is failing to keep pace with the demand.
This is hampered in part by increasingly challenging planning requirements. As local authority planning departments evolve their stipulations for larger scale developments, PBSA developers are increasingly broadening their end products to include residential, affordable housing, retail and leisure in mixed-use solutions. Flexibility of PBSA stock will be required more and more, not only to ensure that the buildings meet high ESG standards but also to allow for use by the public without compromising student welfare.
Consideration also needs to be given to the ever-increasing number of overseas students competing for spaces at UK universities. Whilst it means a healthy pipeline of occupancy, investors should be mindful that, should any restrictions be placed on student entry from countries where we see the highest number of applicants (e.g India & China), this could have significant implications on rental yields and the attractiveness of future investment. This international theme can already be seen in the breakdown of existing and planned global investment into UK universities. According to recent figures from Savills, over the past 3 years, overseas investment accounts for 82% of all investment in PBSA in the UK.
But despite challenging debt markets, high interest rates, fluctuating energy and build costs there continues to be areas of the country such as Bristol, Manchester and Durham where the chronic lack of supply presents ongoing opportunities. And a combination of favourable exchange rates, the strength of student demand and increasing rental yields ensures this asset class will continue to attract investors in the medium term.
L&C has provided insurance for PBSA developments across the country against a full range of title defects, including loss for business interruption arising from delayed occupation.
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