By Daniel Halstead, Real Estate Partner at Shoosmiths

Despite the difficult operating conditions of recent years, the UK’s purpose-built student accommodation (PBSA) market continues to demonstrate its resilience.

Investment into the sector resurged in Q1 2024, with Knight Frank’s UK Student Housing Market Update reporting nearly £750m deployed into PBSA across 21 transactions.

The long-term attractiveness and growth potential of the UK PBSA sector was echoed during a panel discussion I chaired at UKREiiF 2024 in the Markets and Sectors Pavilion.

“We have been actively lending in the PBSA sector for about the last 15 years,” said Shivani Goolab, one of the five panellists and head of private client lending at Investec Real Estate.

“We’ve done about a billion pounds, maybe £1.5bn, across the UK. We will lend against developments, investments and refurbishments of existing stock. We are very positive on the sector and see that the fundamentals are driving positive metrics.”

Despite hefty commitments from funders and investors into the UK PBSA sector, significant imbalances in supply and demand remain. The availability and cost of accommodation in the UK continue to pose challenges for aspiring higher education students.

“Students come to university for a shared experience,” said Tom Wallis, residence life intern at University of Leeds, during the panel – providing the first-hand student perspective.

“A lot of the time it’s their first time away from home. They’re without parents. They’ve got new experiences they want to get involved in, to learn new things and meet different people.

“Accommodation is such a big factor when deciding where you’re going to go to university.”

Analysis from Savills indicates that the UK needs 234,000 extra PBSA beds to help meet demand, with London alone facing a shortfall of 100,000 beds. This systemic undersupply is leading students to choose to go to different locations or institutions – potentially negatively impacting their academic preferences, as well as their physical and mental wellbeing.

“There’s a greater move towards understanding student mental health, wellbeing, and accommodation plays such a big role in that,” added Tom during the session.

This supply squeeze has a direct impact on the affordability of PBSA in the UK, as Rob Waterhouse, transactions director at Global Student Accommodation (GSA), explained:

“If you take Sheffield and Liverpool, they’ve gone from provision rates of 40% to mid-50% in a six-year period, and we’ve seen average rents only of a steady 2%. You compare that to the UK average; we’ve seen average rents of 5% to 6%…So, one of the key things is that by having more beds, we can keep down the rental growth to a sustainable level.”

So, what steps can be taken to increase the supply of PBSA in the UK and create a more balanced and competitive market with greater choice?

One potential approach put forward by Bay Downing, investment director at Downing Group, centred on the increased allocation of land to PBSA development.

“There is no point focusing on one scheme, getting an extra three stories, because that’s only helpful for that one developer,” explained Bay.

“But to do something of scale, it is actually having areas designated for students.”

As Bay highlights, the provision of specialist housing, such as PBSA, must be better prioritised if we want to help ease chronic imbalances in supply and demand. This priority must be reflected at both national and local levels, with the prospect of a new government providing an opportunity to advance discussions around placemaking and planning policy.

It is also important to recognise the role PBSA can play as part of the wider built environment and as a catalyst for the regeneration of areas – often unlocking new economic growth and development opportunities, while also helping to form new communities in towns and cities.

Reaffirming this point was Shivani: “We have funded a few schemes where it’s been PBSA next to co-living, next to build to rent, and that mixture of different tenants means that you are placemaking a lot more, which then regenerates the area around that.”

“We do have an ambition to increase the residential population in our city centre,” said Sarah Shaw, head of planning at Glasgow City Council, during the session.

“It is getting that balance, that mix. So there are residential populations in the city centre…We’re looking at a lot of the student accommodation that is incorporating community uses, commercial uses, as well as the amenity for the students in the particular blocks.”

One of the examples that Sarah mentioned during the panel was The Social Hub Glasgow.

“It’s a mixture of PBSA and short-term rent, and hotel and co-working. And that’s great. We need to be careful as planners that we are flexible enough to take on board these new forms of housing and residential that are coming forward.”

Bay added: “As Sarah alluded to with The Social Hub, it would be interesting to be able to try and get councils out into the properties to see what the communities are like on an operational basis, day to day, and how happy the tenants are in a lot of these properties.”

Community creation, increased affordability, and student wellbeing – these are just a few of the benefits of increased PBSA development in the UK. As we heard during the panel, the real estate industry is responding with innovative solutions and a thoughtful approach to development, working alongside local planning authorities to bring schemes forward.

It is critical that these efforts are better supported, with policymakers and the government creating an environment conducive to development and investment. This isn’t about development for development’s sake, but solving a real problem impacting UK students.

As Rob from GSA stated: “We don’t want to live in a boom and bust sector. We want this sector to be a forever stable, evergreen platform…What we are all after is greater student accommodation, more student accommodation in every city to give greater affordability.”

Daniel Halstead is a real estate partner at Shoosmiths. Taking part in the panel discussion he chaired at UKREiiF 2024 – Sector Insight: PBSA – was:

  • Bay Downing, investment director at Downing Group
  • Shivani Goolab, head of private client lending at Investec Real Estate
  • Tom Wallis, residence life intern at the University of Leeds
  • Sarah Shaw, head of planning at Glasgow City Council

Rob Waterhouse, transactions director at Global Student Accommodation