The outlook for the UK’s Purpose Built Student Accommodation (PBSA) industry is strong for 2020, with a number of details supportive of growth. According to global property management business JLL, the combination of demand for higher education being on the rise, the UK’s deserving reputation for excellence in this area, along with the income earning potential of this property niche, its prospects are positive for students and investors.
Indeed, JLL is optimistic that strong demand from investors for the PBSA sector will continue beyond 2020 and account for almost one third of all investment in Living Sectors across the UK. That’s good news for students, universities, investors and the UK economy.
Student numbers expected to grow
One of the core details underpinning JLL’s positive forecast for investor growth in the PBSA are expectations that student number on higher-education will grow 27% by 2030. This would be the equivalent of an average of 40,000 more students every year over that period. While not all of them will require accommodation, the majority will, which bodes well for the industry.
Add to that the yield and income the PBSA can deliver and it’s clear to see why investors are showing interest.
“In our current economic and political climate, investors are looking for stable, long-term income providing assets that are under-pinned by strong demographic trends,” said James Kingdom, Associate of Living Research at JLL. “PBSA and the broader student living economy remains one of the most attractive prospects in the Living sector and we hope to see universities continue to work in partnership with private developers and investors to deliver new student accommodation across the UK.”
Some challenges remain
While the report highlights the potential highs and positives of the PBSA from an investor’s perspective, it also points out there are potential headwinds, including construction pipelines, rising rents and Brexit.
While tenant demand for PBSA is strong, the next year’s construction pipeline might not be enough to keep pace. Some 26,610 new PBSA beds are expected to be completed in the 2019/20 financial year, which is a slowdown from the previous period.
In addition, construction costs are on the rise which might prove off-putting to some investors if investment criteria change and increase too much. Meanwhile rents are also on the rise which could temper student demand if it climbs too far out of reach. Of course, right now Brexit remains the biggest unknown that could dampen the sector, both for Universities and PBSA investors.
“The sector has a bright future ahead, but investors need to focus on the right investment and development decisions,” said Huw Forrest, Director of Living Capital Markets, Student Housing at JLL.
“The UK’s higher education market faces a few challenges, such as the potential impact of post-Brexit research funding and rising student tuition fees,” JLL adds in its report.
One of the options available to help safeguard investors financial input and expected returns is widespread use of business-driven Rent Guarantors, like the service we provide. By requiring PBSA tenants to sign up to a Rent Guarantor service, investors’ returns will add additional safeguarding to their investment, as their rental income would be protected.
While its clear that the UK’s PBSA industry is well-placed to go from strength-to-strength over the next decade, adding an extra level of protection could help give private sector investors the reassurance they need to continue supporting this growth sector.
