It is widely acknowledged that the growth of the PBSA sector is outstripping other assets with over £7billion invested in 2022 alone. This is an exciting and dynamic area with potential for serious growth and investment. While the UK undergraduate market is slowing, the rising demand for student accommodation is largely being fuelled by international students and in particular postgraduates on one year courses. HESA reported a 72% increase in international students between 2019 and 2022 alone with international graduates expected to increase further over the coming years. Additional students are expected to come from China, Nigeria and India.
However, there is currently a real challenge with meeting the growing demand for student accommodation. There are a plethora of reasons but particularly of note has been the difficult economic climate with the cost of capital, high interest rates, inflation and construction costs. This is exacerbated by the political uncertainty caused by the impending election. This has no doubt contributed to the drop in the number of PBSA planning applications coming forward by 75%. Uncertainty regarding planning reforms to address the housing shortage is not helping. And not forgetting the requirement for two staircases in buildings 18 metres tall and over. With all of these factors at play it comes as no surprise that developers are finding it challenging to make PBSA developments viable.
This supply issue was recently under the spotlight on the eve of the A level results where it was widely reported that there was a 24% drop in the number of student homes available to rent. In London, Savills estimated that there were 3.8 people chasing each purpose- built student bed. Furthermore, its data showed that there are 344,065 undergraduate and postgraduate students in London compared with 91,351 beds in 2021/2022. This is forcing students to resort to the private residential market and often into sub-standard accommodation.
In order for London and other UK cities to retain their appeal to domestic and international students it is imperative that the PBSA sector addresses the accommodation shortfall which will give the market confidence that the pipeline of PBSA developments coming forward will be able to address the significant shortfall. Where there are challenges there are always opportunities. The outlook for the PBSA sector is exceedingly positive. This is also a great time for developers wishing to gain entry into the PBSA sector with great opportunities for long term growth and significant returns on investment.
Howard Kennedy LLP is a full-service law firm, with one of the largest Real Estate teams in London. Jade Chalmers is a Partner and Head of Planning team. Jade is a co-head of our Living team with Charlotte Whitworth, the Co-Head of Corporate Real Estate.
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