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CBRE release PBSA sector update – September 2020

CBRE have released their purpose-built student accommodation (PBSA) sector update, which reveals signs of recovery in investment.

A purpose-built student accommodation (PBSA) sector update has been released by CBRE. It shows signs of recovery in 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.

The update shows that PBSA investment was strong at the beginning of 2020 – but stalled during lockdown. This has picked up again since the lockdown restrictions were lifted and material uncertainty clauses were removed. A total of eight deals – equating to £280m of investment – has been agreed since March. CBRE estimate that £750m to £1bn worth of investment is in the pipeline – which is likely to transact before the end of September.

There were concerns that student numbers would fall in the 2020/21 academic year, but recent surveys reveal that most students favour attending university over deferring. Data from UCAS shows 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 also up 14% year-on-year.

“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.”

Scott Cabot, Associate Director, Research, CBRE 

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.

The update also shows that the main university markets remain supply constrained. During lockdown, construction either slowed down or stopped, which delayed the delivery of new PBSA developments. Although sites have now reopened, the PBSA sector is heavily dependent on completing in September – so the focus is 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 also reports that 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 stabilisation.

“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.”

Tim Pankhurst, Senior Director, Student Accommodation, CBRE 

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