Purpose-Built Student Accommodation (PBSA) is a breakout asset class which is going from strength to strength and represents one of the most exciting investment opportunities in property.
When considering what successful investors are looking for – longevity, high yields, capital appreciation, low maintenance, and hands-off management – PBSA fits the bill perfectly.
Despite some Brexit-related fears that student numbers may suffer, the opposite is true in reality. UCAS, the body responsible for university admissions, reports that the total number of overseas students grew 9% over the last year, and the overall number of applications, including domestic students, is at a three-year high.
Rising demand plus supply that can’t keep up, as well as increasing student wealth, means that yields have been consistently strong and, interest in PBSA investment is growing strongly year-on-year.
A growing market
Savills is positive about the future of the PBSA market, saying: “Purpose-Built Student Accommodation (PBSA) is the most mature and liquid of the operational property markets in the UK.”
The figures show that investors placed £3.1bn in UK PBSA in 2018 – a huge vote of confidence when commercial property, for example, faced a turbulent and rocky ride last year with overall investment and yields struggling. Additionally, Savills predicts that 35,000 student beds will be purchased in 2019, to a total value of £3.5bn, showing that the future prospects of the market are strong.
The report from Savills also shows regional PBSA (Midlands, North West, North East and Yorkshire) to be leading in terms of yields with typical returns of 6%, representing real quality along with its relative liquidity.
According to a Cushman & Wakefield report, “new supply [of student accommodation] has again been dominated by private sector development in 2018, with 77% of all beds delivered by [private providers as opposed to universities].”
Moreover, development has been concentrated in limited areas, with 40% of all new beds in just five cities and 61% in 10 locations. This is reflective of the success of larger city locations such as Nottingham, Leicester, Manchester and London, where the concentration of students continues to grow but the supply struggles to meet demand.
For example, with our developments, Northgate Point in Chester, and Primus Edge in Leicester, we have seen enormous demand thanks to their proximity to city centres, assured NET yields in excess of 7.5% a year, and unique design features which set them apart from the competition.
In addition to the existing strength of the market, Savills notes that there is a lot more to come, saying: “In November 2018, the UK Government gave the green light for universities to offer accelerated two-year undergraduate courses. This will allow students to remain at university studying for two 45-week years, rather than the current standard of 36 weeks for three years.”
There are many that believe this will drive demand, as well as churn, which will mean a growing demand in the coming years that will allow for growing yields, rent and capital appreciation.
Where to invest?
As we’ve seen above, UCAS has reported growing UK and international student numbers, with smaller universities as well as established ones managing to grow again this year. This means that UK buy to let investors should look at developments in a town or city with a lack of available PBSA and well-regarded, growing universities.
The Met is our latest PBSA development, and is located in the heart of Newcastle-Under-Lyme between three universities – Keele University, Staffordshire University and Royal Stoke University Hospital. Comprised of 211 fully-managed apartments, as well as communal and social spaces, this development is designed to be extremely attractive to modern students – thereby increasing the likelihood of residents renewing their tenancies and reducing void periods.
Apartments are available from £73,500 and high assured NET rental yields are available. The Met is an outstanding investment opportunity, and availability is extremely limited thanks to strong demand. For more information, please click here.
Alliance House, WestPoint Enterprise Park
Trafford Park, Manchester M17 1QS.