How student accommodation will evolve by 2030 Part of the Medianett Virtual Roundtable Series
I’ve been lending to the PBSA sector for over 20 years now and, during that time, it has faced many headwinds, such as the introduction (and subsequent increase) of tuition fees, the global financial crisis, Brexit, and now a global pandemic. Each of these challenges has been met head-on and the asset class (which for many years was described as niche or emerging) is now fully understood as part of the real estate landscape and has cemented its position as a standalone asset class in its own right.
The typical student bedroom has evolved from cluster rooms through to studios and back again, deviating into townhouses and various other combinations of co-living premises. PBSA can certainly be considered a dynamic asset class which moves with the times. Given the dearth of decent student accommodation around the turn of the century, there was previously a feeling of ‘build it and they will come’. However, as the sector has moved to second and now
third generation stock, the fundamentals of property development have absolutely come to the fore: micro-location is key and providing buildings with good amenities and excellent WiFi is an absolute imperative. When speaking at conferences or seminars, I’m often asked how long the continued growth in the PBSA asset class is likely to last. I’ve always responded that there remains crumbling university estates up and down the country and, similarly, first-generation PBSA stock
which needs replacing. Consequently, I can still envisage another 10 years of growth, albeit the most successful schemes will be developed in the best locations with sustainable energy-efficient buildings providing excellent amenities for its ever-discerning residents. At Beaufort, we’ve been lending to this sector for years and it remains a key area of focus for us. By Mark Quigley, managing director of UK real estate finance at Beaufort Capital
In April, Development Finance Today collaborated on a virtual roundtable with Beaufort Capital on the topic of ‘How student accommodation will evolve by 2030’. The event was hosted by Beaufort Capital managing director, Mark Quigley, with over 160 people tuning in to watch the live discussion.
Mark Quigly MD, Beaufort Capital
Martin Blakey CEO, Unipol Student Homes
The panel also included four PBSA experts: Joanne Winchester, executive director at CBRE; Martin Blakey, CEO at Unipol Student Homes; Martin Corbett, CEO at Homes for Students; and Richard Simpson, CEO at Watkin Jones PLC. The event kicked off with presentations from all five panellists that provided their views on the PBSA sector from a funding, developing, operating and valuing perspective.
Joanne Winchester Executive Director, CBRE
Martin Corbett CEO, Homes for Students
Richard Simpson CEO, Watkin Jones PLC
Afterwards, the panel answered questions from the audience, including what lessons the student accommodation sector had learned during the pandemic and how this would inform future operational progress. Richard said the PBSA sector was “exemplar” in its sensible and considerate response, which included providing rebates, refunds and support, along with working closely with universities, the National Union of Students, and local emergency services, which he said contributed to the solution, rather than the problem. “If you compare that, generally, to the response in the private rented sector, one of the very first acts of the government as we went into lockdown was to put a moratorium on PRS
forward thinking finance evictions because they could see that there was almost no responsibility being accepted by your typical landlord,” he argued.
“In the HMO market, often you’ve got 5051-week lets,” he said, whereas PBSA buildings have 42-43-week lets.
He said that the maturity shown by student accommodation operators during the crisis marked a real “coming of age” for the sector, and demonstrated to universities and stakeholders that it is a “real force for good” for higher education that needs to be embraced.
“We’ve got a lot to learn about moving to a returning student model, and they tend to be around a lot more than first-year students,” he said, explaining that there will also be a growing demand for lower-cost accommodation—but not lower spec.
“We all know that 10-20 years ago, that wouldn’t necessarily have been said . . . I think the whole narrative has moved on significantly, and that’s a great credit to the sector.”
“Expectations of PBSA from students are different to those of the little landlord down the road,” he commented. “It’s not a level playing field.”
With regard to potentially reassessing supply vs demand, given the role that HMOs play, Joanne said that the number of HMOs has “probably peaked” as a result of the need to get additional planning requirements for C4 use, and the disincentives around BTL taxation.
When discussing the growing threat to the crucial student component from China, considering the political tensions over Hong Kong and Xinjiang, Corbett suggested focussing on the domestic demographic going forward, as it is a more affordable product.
“We’ve probably passed the high watermark of HMOs in most university cities and the number of them is probably decreasing rather than increasing,” she stated.
“I think the [higher-end] studio schemes will be safe, but we are certainly targeting other countries apart from China,” he added.
“I think they’re always going to be part of the landscape because some people will choose to live in shared houses, but I don’t think new ones are being created in any great number.” Consequently, she believes it will be down to the PBSA sector to accommodate 18-year-olds and other groups. Blakey added that Article 4 has put a “corset” on HMOs, and the number of students living in this property type will likely decline, with more returning students living in PBSA.
When looking at the future, Mark expects another 10 years of expansion in the PBSA sector. “It’s the fact that we’ve got these crumbling estates at universities all around the country and the first, second and third generation stock will, at some stage, be bettered and will need replacement. I still think it’s got a great way to go.”
AUDIENCE Q&A: Given the weight of capital flowing into the sector, where are funding yields currently for regional PBSA schemes? Joanne: This is not straightforward to answer at present. Some funding parties still look at a discount to stabilised, assuming growth, but, more often than not, we are seeing funders underwrite current rents and stabilised yields. Working off today’s rents and yields affords them [some] rental growth, which is difficult to forecast at present, while not overpaying at day one. Where discounts to stabilised values are being applied, assuming growth, for less prime regional locations this would be 25-50 bps—but would be minimal for super prime locations. Given the restrictions on global travel and the proportionally higher contingent of international students coming to study in London as opposed to regional universities, do you think this will negatively impact occupancy in London assets until travel has opened up fully? Martin: As you know, international students were restricted in the 2020/21 academic year from coming to the UK because of Covid. This means there is pent-up demand from international students as shown by the increase in applications from non-EU international students. However, we don’t have visibility at this stage of internationals
arriving as they are delaying their bookings until there is more certainty over Covid and travel restrictions. So, if they do turn up, its likely to be in large numbers. But, if they don’t, then London and higher-rented PBSA targeted at international students may struggle again. I would be interested to hear the panel’s views on occupancy levels of their PBSA assets—both in terms of the current booking rates vs last year, and where they expect occupancy levels to be for 21st Sept? Martin: UCAS applications for 2021/22 are up by over 8% from last year, and so the expectations are that booking levels will increase significantly during Q3. We are predicting occupancy for the 2021/22 academic year to be over 90% across the country, and possibly more if the international students turn up.
Get in touch
Mark Quigley
Steffan Goold
Joe Flaherty
Richard Titcombe
t. 0203 795 9085 m. 07342 885 277 e. mark@beaufortcapital.co.uk
t. 0203 793 9228 m. 07342 881 311 e. steffan@beaufortcapital.co.uk
t. 0203 793 9259 m. 07500 704 548 e. joe@beaufortcapital.co.uk
t. 0203 621 2246 m. 07584 095 772 e. richard@beaufortcapital.co.uk
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