As the sector-wide supply/demand imbalance rages on, the purpose-built student accommodation (PBSA) market seems to be struggling the most. With an influx of national and international students choosing to study at UK universities, there isn’t enough accommodation to house them. The predicted rising numbers of students continues rapidly growing, however PBSA schemes cannot be developed in time to meet this need. Morton Fraser’s Jonathan Seddon discusses this phenomenon.
By Jonathan Seddon, Partner and Head of Commercial Real Estate at independent Scottish law firm, Morton Fraser
Demand for student accommodation in the UK is not set to slow any time soon. Savills’ latest ‘UK Purpose-Built Student Accommodation Spotlight’ points to several contributors to that demand. These include an upward trajectory of UCAS (first-year undergraduate) acceptances, an increase in non-EU students far outweighing the post-Brexit drop-off in EU students, and a significant drop-off in private landlords offering accommodation with five beds or more – along with a lacklustre PBSA supply pipeline.
And while the PBSA sector is being viewed as a key solution to the undersupply, the industry is struggling to fill the need, with Unite recently saying it ‘cannot keep pace’ with demand for student housing.
Like most other developers, those in the PBSA industry are working to bring new accommodation to the market at a time when land prices are at a premium, construction costs are at an all-time high, and planning permission can be slow to come through. So, like most other parts of the commercial real estate landscape, developments are expensive and are only viable if they can achieve the highest of rents.
This means that in Scotland, not only do we face a shortage of student accommodation, but PBSA is also only supplying the higher-end of the market. For many students studying in Scotland, these high-end developments will not be a viable option.
One of the conclusions from the Scottish Government’s PBSA and student housing research report was that there was too much ‘upmarket’ stock and that the sector ‘should work together to deliver more mid-range, lower cost PBSA’.
With the challenges facing PBSA developers, it is not insignificant to ask the industry to deliver more stock while also diversifying the product. However, there might be a few ways for the PBSA sector to deliver if it can broaden the approach.
I have long believed that a core part of the solution to providing more mid-market PBSA stock could lie within its location. For some international students, part of the appeal of experiencing education in a new country will doubtless be because of an appealing city or locale. In these cases, they may also be more prepared to pay for the high-end accommodation that the PBSA sector is supplying.
However, not all students will have the same motivators. In many cases, lower specification accommodation that provides the basics in an area with transport links will be all they require, particularly if it makes more financial sense.
For PBSA developers looking to fulfil mid-market demand, looking at lower-priced properties that are slightly further from the heart of the campus may help to reduce the cost of the development, thereby reducing the rents they need to demand.
Another route to cost reduction for renters could be through refurbishing existing student accommodation. For developers, the cost of refurbishment will be significantly lower, to the point that the accommodation could be offered at a lower price to match. While many students at the peak of the market will want shiny, new PBSA, a refurbished option could well suit students who need to stick to a lower budget.
If the type of asset is broadened slightly, private rented sector (PRS) stock could also be repurposed as PBSA, particularly where rent caps might have reduced the appeal of PRS within the real estate market. Again, this solution brings a lower cost to the PBSA sector, thereby making more mid-market property available.
Our higher education institutions are seeing the benefits of a strong international push and it is clear that the property sector needs to find new ways to meet an influx of demand. If the PBSA sector can create routes to nimbly achieve more results, then students, our higher education institutions and the PBSA industry itself all stand to benefit.