The purpose built student accommodation (PBSA) sector in the UK is widely regarded by developers and the construction industry as holding its own in otherwise turbulent times.
The SectorScope has covered numerous stories in the past few months that show PBSA developments on the increase. Spending on these projects can be substantial: almost £20 million on new accommodation in Dundee; £20 million plus for a new development in Bristol; and a massive expansion of student beds for Exeter University.
Living away from home is an integral part of university life for students in the UK, and the choice of accommodation can be a vital part of the whole experience. Competition for students makes the quality of accommodation a vital element of a university’s overall offering. Quality of accommodation is important, but increasingly there is an emphasis on providing communal areas as much as plush kitchens or en suite showers. Given the history of the past few years, it’s understandable that students want to feel part of a community again.
Projected growth of the student market Many reports from investors and developers show that PBSA is a strong sector for growth, and this looks set to continue over the next decade.
The CBRE report Outlook 2040: Demographic trends driving the future of real estate shows the projected increase in the population of 18-year-olds in England is 26% between 2020 and 2030, translating to almost 160,000 more 18-year-olds living in England in 2030.
This increase could lead to a demand for around 358,000 additional university places by 2035, according to a report by the Higher Education Policy Institute (HEPI). Demand for purpose-built student accommodation is expected to remain stable, and university towns and cities are expected to see an increase in demand over the next ten years. However, towns with less well-regarded universities may see a decrease in demand for PBSA over the long term as the student age cohort in the UK changes.
Figures from Savills (May 2023) show that there will be 622,000 first-year undergraduate students in 2023/24 in the UK. And despite recent changes to visa rules, international students are still seeking educational opportunities in the UK. Between 2019 and 2022, the number of full-time international students rose by 117,500, which made up for the fall in EU students post-Brexit.
Demand for PBSA Purpose-built accommodation is not the only option for UK students, with some choosing to rent shared houses (known as houses in multiple occupation or HMOs). While this remains an option, recent regulation and tax rules changes have seen the number of HMOs with five bedrooms or more fall by 31% in Q1 2023.
As a result, more students will be turning to the PBSA sector for a place to live, which Savills sees as the driver of an expected rental growth of 7%+ for 2023/24. As the return on investment increases, we expect further growth in this sector.
Geography and the PBSA market Significant growth areas for PBSA are London, Nottingham, Leeds and Birmingham. These university cities account for just under 40% of the pipeline for new beds coming onto the market.
In the past year, cities such as Manchester, Durham and Bristol have felt the squeeze on student accommodation as demand has outstripped availability. The SectorScope has tracked news on developments in these cities as the market responds to demand.
However, the growth areas are not all in the large cities. Newcastle-under-Lyme, Leamington Spa and Ipswich are also seeing growth in PBSA developments.
Energy efficiency and sustainability Rising energy prices have badly affected students, and PBSA developers are increasingly aware that accommodation must be affordable for their customer base. And several PBSA providers offer accommodation with all-inclusive energy bills, making this an important issue for landlords. As a result, even though UK energy prices are stabilising, developers in this sector are much more focused on energy efficiency.
Savills notes that developer Unite invested £13 million in energy improvements during 2022 – up from £3 million in the previous year. The result is that 80% of their PBSA properties now have a minimum EPC of C, up from 51% in 2021.
For new PBSA developments, the emphasis is now on better insulation, the use of building energy management systems (BEMS) and efficient heating in the form of heat pumps.
Conclusions In 2023 we can expect the PBSA market to continue to provide steady work for the construction sector and related suppliers.
The increasing importance of energy efficiency in the market is also an opportunity for suppliers to talk about relevant services and products, particularly around efficient and low-carbon heating and hot water systems such as heat pumps.
PBSA is about 30% of the offsite or ‘pod’ bathroom solutions market. Not only do pre-built bathrooms and en-suite shower products reduce installation time, but they also minimise waste. In addition, with many PBSA projects in the city or town centres, there is little space for storing materials. The pre-built bathroom pod solution is fast and efficient and helps to overcome the shortage of skilled construction trades.
Other products of importance to this market are security systems (including CCTV and entry systems) and building management systems to support energy efficiency and facilities management.
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