What Factors are Driving the UK PBSA Market?

Posted by Colliers on 13th November 2023 -

In this exploration of the PBSA landscape, we delve into the latest trends and insights in the real estate industry to unravel the dynamics of this burgeoning market.

The investment market landscape 

With investment amounting to £2.4 billion so far in 2023, the UK PBSA market continues to attract a significant level of investment. It is worth noting that last year the sector attracted £6.7 billion of investment, but this was boosted by the £3.3 billion Student Roost deal. A standout moment this year was DIF Capital Partners' acquisition of a portfolio comprising 4,500 units across seven key cities. Our team also advised Cain International in its acquisition of two PBSA assets in York and Leeds, both locations are undersupplied and feed the narrative that more needs to be done to meet the demand for PBSA.

Meeting the surging demand for purpose-built student accommodation 

As the number of students in the UK continues to rise, the demand for PBSA has not grown in tandem. There exists a substantial disparity between the number of students seeking accommodation and the available PBSA stock; in the 2021/22 academic year there was a record high of UK students at 2.9 million. This has repercussions, pushing students into the Private Rented Sector (PRS) and House in Multiple Occupation (HMO) markets, thereby driving up rents, affecting families and long term residents. 

What do students want?

The annual survey by the Global Student Living Index shows that the students who live in private halls have overall higher levels of satisfaction. The results particularly highlighted the importance of facilities and prioritising wellbeing through active management of the property and engaged staff. Those in PBSA felt that their accommodation team cared about their wellbeing more than those who are in university halls, 64 per cent compared to 57 per cent. The social element was also key, with 63 per cent of students in PBSA saying they felt they had formed close friendships, only marginally below the 68 per cent who felt the same way in traditional university halls.  

Navigating housing challenges in London

London, with its worldwide appeal as an educational hub, presents unique challenges in accommodating its growing student population. The capital has a particularly worrisome future trendline as the pipeline of beds is limited in relation to the provision and will push more students into the private rental market in London and continue to inflate rents. PRS rental inflation in London was c.13 per cent in the 12 months to April 2023. 

Pandemic impact and share price recovery

The pandemic, which disrupted various sectors, also influenced the PBSA market. With high exposure to PBSA, REITs Empiric and Unite saw a sharp drop in share prices at the start of the pandemic, likely due to fears around travel restrictions and the ability for students to attend university in person. 

However, it became evident that in response to the pandemic and fears about the future of the workplace, many young people opted to stay in education, and choose to study in the UK due to the international reputation – also studying here is also significantly less expensive than in the US. As as a result we’ve seen share prices for those REITs make a healthy recovery. The Empiric share price index now sits above SEGRO, having had a decline in share price of only 2.4 per cent between February 2020 and September 2023.

In conclusion, the UK's PBSA market is a promising arena for investors, despite a blip during the beginning of the pandemic, with the level of demand far outstripping the supply. This is particularly true for those assets that prioritise safety, amenity, and community – something that PBSA developers can provide in spades. 

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