Purpose-Built Student Accommodation sector supported by positive demand for undergraduate places and supply constraints

Signs of recovery are appearing in purpose-built student accommodation (PBSA) investment, after Covid-19 related disruption stymied the market earlier in 2020. The rebound is supported by positive demand for undergraduate places and an acute undersupply of student accommodation exacerbated by construction delays, according to the latest PBSA sector update from property advisors CBRE.

Investment into PBSA was strong at the start of 2020, but stalled throughout lockdown. However, this has picked-up since restrictions were lifted and material uncertainty clauses were removed, and a total of eight deals, equating to £280m of investment, have now been agreed since March. There is an estimated £750m - £1bn worth of investment in the pipeline that is likely to transact before the end of September.

There was concern that student numbers would fall in the 2020/21 academic year. However, recent surveys have indicated that most students still favour attending in the current year over deferral. UCAS data showed a 2% year-on-year increase in overall applicant numbers in June 2020 and a significant increase in applications from international students. Applications for nursing degrees are up 14% year-on-year.

Bookings for the 2020/21 academic year are still growing for many operators and are now in-line with the previous cycle. Headline rents at the portfolio level have reportedly increased by approximately 3% year-on-year compared with 2019/20.

All the main university markets remain supply-constrained. Throughout lockdown construction slowed or stopped completely, delaying the delivery of new developments. Although sites are now reopened and progressing, the PBSA sector is heavily reliant on completing in September, so the focus is currently on delivering sites that are close to practical completion. As a result, the progression of other developments will be delayed, further compounding the under-supply in certain markets.

CBRE reports it expects yields to remain broadly stable in the short term. Operators are reporting robust rental growth at a portfolio level and rental guarantees will help to underpin pricing in many instances, resulting in yield stabilization.

Scott Cabot, Associate Director, Research at CBRE comments, “According to CBRE’s Student Accommodation Index, PBSA has provided superior returns at lower volatility when compared with the other mainstream real estate sectors over the past several years. During this recent period of uncertainty, the PBSA sector has demonstrated durability. The sector will continue to be supported by strong underlying fundamentals, and we expect to see increased levels of investment and outperformance relative to other real estate sectors going forward.”

Tim Pankhurst, Senior Director, Student Accommodation at CBRE comments, “The student market was in great health prior to COVID-19 with some of the best student and investment metrics on record. The pandemic has impacted demand for accommodation, but this is expected to be limited to the 20/21 academic year. With such strong underlying market fundamentals and resilient track record for total returns there is the potential for a strong bounce back in September 2021, if not sooner depending on how the next few months pan out.”

Read the Report: Purpose Built Student Accommodation: Sector Update, September 2020