Despite the current economic uncertainty faced by the UK economy, there is little doubt that the demand for purpose-built student accommodation is growing in cities such as Sheffield, Leicester, and Manchester.
With demand for affordable student lets outstripping supply, the private sector has been under significant pressure to fill the shortfall in student accommodation with many student landlords looking at new ways of profiting from their student property investment portfolios in several locations.
Here’s an overview of the current PBSA landscape and an insight into what the future holds for student accommodation here in the UK.
With Brexit causing many overseas students to apply for places in UK universities before we leave the EU, the current stock of student accommodation has struggled to cope with an influx of home grown and international students all seeking good quality student accommodation.
UCAS reported a total of 20,730 applications being made to UK universities during the 2017/2018 application cycle which signified an 8% increase in applications for degree courses compared to previous years on record, meaning that there are far more applicants than ever before.
With so many applications filling every available space on degree courses, student accommodation and the need for HMO’s has far exceeded supply, meaning that the PBSA industry has boomed in recent years.
Instead of hindering the student accommodation market, Brexit has, in some ways, helped drive demand in this sector and greater investment has been placed upon providing good quality student accommodation in many cities.
With 23,000 new bedrooms being created for the 2018 / 2019 academic year, a further 11,000 beds are already under construction showing an overall increase of 4.3% of PBSA with more currently undergoing the application and approval process.
However, this is just a drop in the ocean compared to the student property actually required as for every single bedroom available, three students are ready and waiting to fill it showing that there are great opportunities for property developers and student landlords to capitalise on this demand going forward into 2020 and beyond.
The current PBSA landscape
Currently, 69% of PBSA stock is owned and managed by universities, with the private sector filling in the shortfall. With demand creeping higher and higher for student accommodation, it has been predicted that private sector developers will be providing 74% of the beds required for 2020 which still shows a deficit of 26%.
With the trend of PBSA moving towards the value end of the market, many new developments are focusing upon cluster flats where several single bedrooms share the same communal areas such as kitchens, bathrooms and living areas to maximise space and keep development costs low.
Two bedroom flats are seen as more of a luxury when it comes to the student accommodation and HMO market, and therefore there have been fewer developments using this arrangement in order to maximise occupancy and profits.
Currently, 38% of purpose-built student accommodation is made up of studio flats which can command far higher rents, but this trend is most definitely on the wane as developers are looking at more communal style student housing.
Markets by location
The best performing city in terms of PBSAs is Manchester with the highest levels of cluster flats and the provision for the most beds. Sheffield also boasts an impressive number of this type of HMO’s with 88% of the current market using this layout.
However, it is Leicester that offers the best opportunity for student accommodation development with 91% of the total student accommodation stock being studio flats that are more expensive to rent and can be better utilised to accommodate more tenants with a few adjustments.
This emerging market shows that there is a significant gap between the demand and supply in Leicester, so there is plenty of scope for further development of PBSAs and for student landlords with an existing student property investment portfolio in this area.
Interestingly, the demand for PBSA in northern cities such as Sheffield, Leicester, and Manchester has far outstripped the demand felt in London. This is thought to have been caused by stringent planning regimes and lack of available space in central locations and not the number of students flocking to the capital to study.
However, it does show that there is still ample opportunity for private student landlords in London to capitalise on this current student accommodation boom as there are far less PBSAs being developed in the city. Currently, this means students are reliant on oversubscribed halls of residence and private student lets.
What students want
With the trend for PBSAs moving towards comfortable and low-cost student accommodation, plans for future student accommodation is following a model very similar to the traditional HMO.
With communal areas such as kitchens and lounge areas and separate en-suite bathrooms for each bedroom, student tenants are able to enjoy privacy and the ability to mix and interact with others sharing the student accommodation should they so wish.
Known in the industry as ‘cluster flats’ this model is working well and helping to address the shortfall of accommodation so long as PBSA developments are situated in areas with good public transport links and local amenities to allow students to navigate the city and local areas with ease.
Another key consideration is Wi-Fi connectivity and private study space considerations, but with improvements in high-speed internet across major cities and the addition of a small desk located in each bedroom, this isn’t proving to be much of a problem when providing student tenants with the essentials they require without increasing costs.
The PBSA sector is predicted to reach a total combined value of over £53bn by the end of 2019, but where is the investment coming from to allow the building of these new developments?
The appetite for acquisitions from overseas investors has been driving the PBSA sector, with big players from Singapore, Hong Kong and America fronting the finance for these new developments all over the UK.
Although Brexit has been a key concern for some investors, this hasn’t stopped the PBSA sector attracting both UK and international investors as they seek to profit of the UK’s world-renowned higher education sector,
Plus, with an almost 45% value increase in the PBSA sector since 2014, their investments can provide them with a healthy income stream with good rental growth prospects for many years to come. So it comes as no surprise that many overseas investors are looking into PBSAs.
The student property pipeline
With more and more student accommodation due to be required further on down the line, the private sector is under increasing pressure to provide even more bedrooms. This is despite the increasing number of PBSAs being built in cities such as Manchester, Leicester and Sheffield.
Current student landlords and HMO owners are being urged to think about affordability as a primary concern and the ability to maximise bed space on offer while ensuring that any student lets remain compliant with current letting legislation. There is undoubtedly scope to increase profitability thanks to a booming student accommodation market provided that the accommodation on offer ticks the boxes for modern students and their parents.