Student accommodation sector is no stranger to volatility

Following a recent student housing roundup event, Shoosmiths highlight key takeaways from the student accommodation sectors discussions.

Student accommodation building in Southend - Shoosmiths | PBSA News
Student accommodation building in Southend.

The recent student housing roundup brought together funders, investors, developers, and operators to discuss the UK’s purpose-built student accommodation (PBSA) sector.

The prevailing sentiment was that despite current economic and political uncertainty, the PBSA sector remains resilient. It has the potential to continue growing and generating returns for those funding, developing and investing in PBSA.

By Daniel Halstead, Real Estate Partner and PBSA specialist at Shoosmiths

One of the main reasons for the sector’s resiliency is the systemic undersupply of PBSA. While challenges around supply are UK-wide, shortages are being felt more acutely in some cities, including Manchester, Bristol, Glasgow and Edinburgh.

Recent research reveals that there is currently a shortage of 207,000 student beds. By 2025, the gap could widen, with the UK potentially facing a shortfall of up to 450,000 student beds.

With overseas students returning to UK universities and the education sector moving to ‘normality’ post-Covid-19, it is critical that more is done to tackle the PBSA shortage. This presents an opportunity for investors, funders, and developers that can bring forward new accommodation confident in the knowledge that the demand for beds remains high. 

Even when the supply evens up, which could take years, PBSA can look to other parts of the student housing market for opportunities. 

Pricing will remain a factor, but by providing quality accommodation that meets constantly evolving student needs, PBSA can be increasingly competitive against the traditional second- and third-year HMO market. Increasing market share in that space will only strengthen PBSA’s appeal.

There are immediate challenges that the sector and wider real estate industry must navigate.

Rising utility costs and interest rates are making funding and operating PBSA more difficult. As fellow speakers explained, this is leading to some short-term uncertainty, as the industry assesses the rapidly evolving economic situation and policies being brought forward by the government.

Deals are still being done, however, showing the sector’s ability to adapt.

Developers and operators also spoke on how the sector has been progressing the environmental, social and governance (ESG) agenda. 

By empowering student residents and enabling them to help shape PBSA schemes, many in the sector are adopting, even pioneering, new initiatives and technologies that lower energy consumption, encourage sustainability and support student wellbeing and communities.

Head of UK Development at Student Hotel, Ilya Tabachinskiy, shared how its schemes have been able to reduce water usage by 20% through technology and student engagement.

These examples help to demonstrate how the PBSA sector is at the forefront when it comes to ESG credentials. Rather than being roadblocks to progress, the current challenges facing the industry must be seen as a way to accelerate further change – enabling developers and operators to not only minimise factors such as energy consumption, but also meet the changing demands of students and ESG requirements from investors and funders.

As echoed by the panel, the sector has experienced volatility before. It is resilient though and by continuing to bring forward versatile and quality PBSA that improves the student experience, the industry can put itself in the strongest position possible for growth.