Those who know me well will know that I’m all about the numbers.
Whether they are football scores, the number of concert tickets that Oasis have sold or the latest budget figures, I’m interested in the detail.
So, it will come as no surprise that I noticed that CBRE reported that between January to September 2024, it has seen returns of 9.8% across the purpose built student accommodation (PBSA) sector.
This certainly chimes with the uptick in enquiries we’re receiving from brokers who have investor clients looking to diversify their portfolios and are attracted to the potential returns that PBSA could deliver.
Growing demand for PBSA
The Universities and Colleges Admissions Service (UCAS) anticipates a 30% increase in demand for higher education by 2030. This projection has been labelled the ‘Journey to a Million’.
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By the end of this decade, there could be up to a million students applying for higher education. This expectation has led to education and public policy experts looking at options to meet the growing demand, which includes increasing degree apprenticeships, building more universities in education ‘cold spots’ and expanding existing universities.
This all suggests a rosy outlook, however, investors still need to tread carefully when looking to get into or expand into the PBSA space.
Location is key in this type of market, in fact, it’s probably more important than any other property type, along with being close to the university and amenities which are definitely vital requirements. It’s important for investors to really research the higher education areas they are looking into.
Research is key to success
Even though there is clear demand both now and for the future, not every institute is experiencing the same growth projection.
The key factors for consideration are:
- Student enrolment figures – what are they currently and how have these changed over recent years? Is it showing growth or decline?
- Rental demand – has demand by students in the area grown or slowed over recent years?
- Occupancy levels – student terms can be short, so it’s worth investigating the rental periods and what the general student occupant rates have been
- Planning requirements/restrictions including Article 4 – this could prevent houses in multiple occupation being built in the area which could work in the favour of an investor looking at PBSAs. However, it could restrict alternative use when the property is sold in the future.
The higher education industry creates huge positive impacts on the UK economy, contributing over £130bn. The biggest impact is felt across London and the South East, followed by Scotland and then the North West.
Cost, affordability and demand
Although these areas appear to be the most suitable locations for investing in PBSA, it’s important that other factors such as cost, affordability and demand are taken into consideration too.
Regardless of whether you’ve been to university yourself, we’re all aware of how limited the student budget can be, with the average monthly spend of £1,104 in 2024. Obviously, this differs from region to region with costs starting from £926 in Northern Ireland but rising to £1,264 for London.
Another factor to consider is the changes to tuition fees which will be increasing in line with inflation to 3.1% for the 2025/26 enrolment, meaning a confirmed price of £9,535 per year with future rises not ruled out. Consider how this will impact student budgets and what type of housing is more likely to appeal?
There is added comfort that student demand has remained resilient, even since the last hike in fees in 2012 where we saw fees triple from £3,000 to £9,000 per year.
Since this time, UCAS applications have continued to rise and there should also be consideration for the vast number of overseas students that visit and need accommodation.
There’s a clear supply and demand imbalance in the PBSA sector.
The record number of students in the UK is driving strong demand for accommodation but the supply of available beds is not keeping pace and is increasingly limited by planning constraints creating exciting opportunities for investors.
