Threats facing the UK Purpose Built Student Accommodation (PBSA) Sector
7 Minute Read
It's clear, the PBSA sector is HOT but no market is without its threats. I've outlined a few that we are taking seriously through the Location of, Design, Build and Operation of our PBSA.
Build to Rent
Purpose Built Homes for the intention of rental, Build to Rent (BTR) Apartment Blocks are on the rise (pun intended), with developments already in operation like London's East Village and Essential Living properties. There's a host of other cities that have projects in the works too like Birmingham, Liverpool & Bristol.
Offering all inclusive services and features not only akin to luxury PBSA with on-site maintenance team, concierge and communal areas but taking it further with swimming pools, shared kitchens and on-site restaurants. BTR is telling consumers what they want well before the market demands it.
With just shy of 100,000 BTR units either completed or planned in the UK, more students may opt to live in this type of property in the future as it allows them the opportunity to stay for a lot longer (with up to 5 year tenancies) and maybe live a more mature, appealing lifestyle.
Development sites for PBSA are usually in key central locations that also appeal to BTR developers and so conflicting interests in site selection may hinder efforts to increase PBSA stock or drive the purchase cost of the land up, pricing out the scope for PBSA.
As we operate in both the BTR & PBSA market, our concern is how we can best maximise the use of a development site to create an appealing rental product with longevity for the right end-consumer.
Another advantage is that we're able to shift and change our scheme to target a different demographic (students or professionals), if we hit any roadblocks during the planning phase. It's something we've done previously and allows us to maintain our strategy of buying and/ or developing sites to retain and manage in-house.
Affordability issue of rents
The rising costs of rent is marginalising some students, especially those from lower income backgrounds and are even tugging at the purse strings of the more affluent middle class who often need to supplement the income of any offspring attending university.
With average yearly rents for en-suite rooms at £5,500 outside of London and average yearly maintenance loan paid in England of just £4,730, additional funds are required from the very start. The lack of affordability could mean students are deterred from living in PBSA and instead choose less financially prohibitive alternatives like Houses in Multiple occupation (HMO). Staying at home and commuting to University may be the only financially viable option for some or not attending University at all.
See www.gov.uk/student-finance-calculator to run some numbers, it may surprise you.
Students who are able to afford pricier accommodation, do appear to be getting more selective with the accommodation and the facilities PBSA providers are offering and rightly so.
PBSA operators will need to carry out a price sensitivity analysis on a regular basis across their stock and further cost schemes to account for potential fluctuations in the amounts of rent that can be charged. This is not something I see as an immediate danger although in the next 3-5 years, cracks may well start to show and the bleak future of some schemes set.
Available Students, Apprenticeships & other school leaver programmes
The Office for National Statistics (ONS) forecasts the number of 18-19 year olds living in the UK will fall over the next few years and not seeing a return to current levels until 2025. This age group make up over two thirds of the entrants to full time university courses.
Although the number of university places have grown each year, the rate at which the school leaver population is applying for Higher Education (HE) has fallen slightly in the past couple of years but applications still significantly outweigh places. As the number of students available to enter HE falls, the potential knock on effect to PBSA may pose problems for some operators.
The Government has pledged to increase apprenticeships in England to three million by 2020. As apprenticeships and employment options for life after school become more prevalent, we could see university student numbers wane further.
Brexit
Applicants from the EU are highly dependent on the current funding structure of university places in the UK and the outcome of Brexit may also result in higher tuition fees, deterring EU applicants. However, non-EU international student applications hit their highest level in 2017 and if the trend continues, it could help to offset any loss in EU applicants.
I'll be going further into Brexit and it's possible impact on the sector on another occasion as it's more appropriate to dedicate a whole article to what is a 'meaty' subject in the respect of PBSA.
Combatting any threats is really about committing to schemes that work in the long haul. Playing the long game for us means positioning schemes with long term goals of sustainability and marketability with 25+ years in mind.
Any questions about PBSA or Build to Rent Apartment Block schemes? Comment below and I'll answer as best I can or even write an article on it.
