Purpose Built Student Accommodation (PBSA) has rapidly become the UK’s top asset class for investors looking to achieve consistently high-yields and a hands-off investment. PBSA is designed to meet the demands of today’s students by providing studios and apartments with large shared areas, study rooms, gyms, TV and laundry facilities and monthly rental prices that include all utility bills.
Not only are they attractive places to live for students but local councils across the UK also favour PBSA over the HMO market as it confines large numbers of students to specific areas and reduces pressure on local housing.
Therefore it’s not unsurprising that Purpose Built Student Accommodation is becoming increasingly popular among property investors with PwC’s 2019 Emerging Trends Europe survey finding that 32% of respondents were considering investing in student housing. According to Knight Frank’s global head of student property, James Pullan, the value of the PBSA sector is set to reach over £52bn by the end of this year with the strongest appetite for acquisitions coming from the US, Singapore and Hong Kong.
As an experienced investor myself, and now leading the team at ambT Property Partners LLP, here are five reasons why I consider purpose built student accommodation to be a smart investment:
- The PBSA market is counter-cyclical
Interestingly, student numbers typically increase during an economic downturn with people looking to up-skill or stay in higher education to avoid entering a weak job market. Therefore student accommodation is one of the few asset classes that can claim to be virtually recession proof, having performed well throughout the 2008 financial crash with similar results likely to be seen in coming years until the outcome of Brexit and its effects are known.
2. High Demand
In the UK there is currently a critical shortage of student accommodation. Campus accommodation is often limited and so too is accommodation in the surrounding area meaning student rental prices remain stable and high. According to Knight Frank, in Nottingham, 45% of students already live in purpose built student accommodation but the remaining 55% of students (30,000) are unable to access university or private sector purpose-built accommodation due to lack of supply. Across the country, student numbers are increasing at around 2% a year with the current number of PBSA properties only able to house around 20% of the student population.
Many students are also drawn to PBSA accommodation over traditional housing as it is a ‘safe’ and ‘simple’ option for them. As well as on-site facilities like washing and study rooms they often come with on-site security and secure key card systems. The monthly rent payment also tends to cover all the costs of WIFI, council tax and utilities such as water. Not only is this alluring to the students themselves, but to their parents too.
3. Higher Percentage Returns
PBSA schemes typically offer around 10% yield on investment, usually guaranteed for a period of up to 5 years by the developer offering the opportunity. This is considerably higher that the typical 3-4% yield we’re seeing in the residential buy-to-let market at the moment.
4. Low Cost of Entry
The UK government is actively encouraging PBSA investments meaning a 0% Stamp Duty rate is payable, representing a significant saving when compared with residential buy-to-let.
5. Steady, Hands-off Income
A guarantor, usually a parent, almost always guarantees student rental payments so unlike some other tenants rental income is very likely to be paid. Additionally, across the UK, rent prices paid by university students are largely consistent, no matter where they are in the country. This of course differs from residential rental prices which tend to fluctuate considerably from region to region.
Developers will also normally appoint a dedicated management company to run and maintain the entire site meaning investors don’t have to deal with the usual headaches that come with being a landlord.
Mitigating Risks of PBSA Investments
It’s worth noting that as with any investment there are risks and some PBSA investments are stronger than others. To mitigate the risks we at ambT Property Partners identify the strongest PBSA deals by looking to the top tier universities, those in the Russell Group, for their strength and quality in the market place. Location and proximity to the university is also critically important, the closer to the university in terms of walking distance the better.
We also look for deals where strong covenants, such as a nomination or NOMS agreement, have been struck between the university and developer to guarantee an income level for the academic year and mitigate the risk of voids and ensuring a consistent level of income is achieved. Russell Group scheme yields will range from 6%-8% with a NOMS in place and as the asset becomes known in the market the yields will compress and stabilise, usually after 2 years of operation.
With the right asset manager and developer PBSA can make a great investment and appetite for them is high among investors with a recent study by StudentMarketing finding that there are currently more than 350 new PBSA projects with a combined 105,000 beds in the pipeline. But this £15bn investment is not enough to meet the demand, which is only set to keep increasing as university admissions continue to rise.
ambT Property Partners’ PBSA Investment Opportunity
If you’re considering a PBSA investment, whether to expand your portfolio or enter the market, ambT Property Partners LLP has a proven track record and a highly experienced team.
In our current pipeline is a 400-bed purpose built student accommodation scheme in a prime location and with strong margins.
Get in touch with me directly for more information and details of how you can invest: Michael.d.oliver@ambtpropertypartners.com | +44 (0)20 3036 0446.
