Exploring PBSA, PRS, BTR, and HMO Investment Avenues

In the dynamic landscape of real estate, opportunities abound for savvy investors to diversify their portfolios and capitalize on a range of property investment types, including student housing investments. As the industry continues to evolve, understanding the distinctions between these investment avenues becomes important. In this article, we explore the realms of Private Rented Sector (PRS) encompassing Purpose-Built Student Accommodation (PBSA), Build-to-Rent (BTR), and House in Multiple Occupations (HMO), shedding light on their unique characteristics and guiding investors toward prudent choices for their investments in student accommodation.

Introduction to Private Rented Sector (PRS)

PRS is a term used to describe the rental market where private individuals or companies own residential properties and rent them out to tenants. These properties are not necessarily purpose-built for a specific group, like students, but are available for rental to the general public. This sector offers a diverse range of housing options, from urban apartments to suburban houses, catering to tenants seeking short- or long-term stays. PRS properties can vary in amenities, providing residents with flexible living experiences. PRS is the umbrella under which the rental property types fall, so PBSA, BTR and HMO properties are essentially the constituents of PRS.

• CBRE reveals a shifting tide as investors veer away from office investments, gravitating toward alternative real estate sectors - particularly student housing investments. The Private Rented Sector (PRS) has seen a year-on-year surge, with EUR 130 million invested in CEE countries during the first half of 2022. The sector's ascent is further propelled by the growing significance of this asset class, driven by housing affordability challenges in parts of Central Europe. In the UK market, the sector has grown with 4.6 million households renting their home from a private landlord in 2021/22, representing 19% of all households in the country, many of them long-term tenants. This dynamic shift underscores the ascendance of PRS as an enticing and burgeoning realm encompassing student housing investments.
• However, the PRS in the UK confronts challenges such as housing issues, legal complexities, and power imbalances, impacting tenant safety and well-being. Persisting substandard living conditions and outdated regulations create a disparity between landlords and tenants, hindering necessary improvements. Additionally, data inadequacies limit informed decision-making and the assessment of legislative impact within the sector.

1. Purpose-Built Student Accommodation (PBSA)

Purpose Built Student Accommodations are privately developed and managed student housing properties mainly located within walking distance of the universities. This sector has a prominent presence in the UK, USA, Canada, Australia and Europe as the international student inflow has been rising in these regions due to the quality of education and career prospects. Since university enrolments have exponentially increased, conventional on-campus accommodation is unable to accommodate student housing needs. This niche housing need has been addressed by the private sector and today we can see many operators consistently developing high quality and sustainable student housing properties across the major markets.

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PBSA properties are thoughtfully designed to cater specifically to the needs of higher education students. These properties are strategically situated in proximity to educational institutions and offer fully furnished units with specialized amenities. PBSA offers more than just housing; it provides a complete academic ecosystem, including communal study areas, lounges, and advanced security features. This creates a strong sense of community within PBSA complexes, enhancing the overall student experience. The sense of community created within PBSA complexes contributes to a well-rounded student experience.

Amber reports that currently, the PBSA market in the UK is valued at a staggering $74 billion, followed by the US at $65 billion. Moreover, in Australia, as enrolments have seen a significant rise in the past couple of years, the PBSA market is getting higher traction with the rising number of beds in the pipeline. As universities grapple with their own housing constraints and struggle to meet the rising demand, the global PBSA market is set for significant expansion. These factors cement PBSA's status as an appealing student housing investment opportunity with a bright road ahead.

2. Build-to-Rent (BTR)

BTR is a type of property development where a developer constructs residential buildings specifically for the purpose of renting them out, rather than selling them to individual buyers. These properties often come with on-site management, shared amenities, and long-term rental options. With amenities like fitness centres, communal workspaces, and gardens, BTR caters to families and professionals seeking a comprehensive lifestyle within a community-driven environment.

The Build-to-Rent sector is currently thriving, with over £30 billion invested, over 75,000 homes completed, and an additional 163,400 in the planning and delivery pipeline. This momentum shows no signs of waning, as a recent report by the British Property Federation (BPF), Savills, and data experts Molior reveals that completed BTR homes could surge five-fold to reach 380,000 homes by 2032. This forecast underscores a projected rise from 1.5% to 8% of purpose-built UK rental homes by 2032. Whereas Earnest and Young projects the estimated value of BTR sector in Australia at AU$16.87 billion. The BTR sector's trajectory paints a vivid picture of sustained growth, underlining its prominence within student housing investments.

3. House in Multiple Occupations (HMO)

A major component of the UK student housing market, an HMO property is defined as a property rented out by three to five individuals who are from more than one household under Section 254 and Section 257 of the Housing Act 2004.

HMO properties are designed to house multiple tenants who share facilities such as bathrooms, kitchens, and common living areas. These properties are particularly popular among students and young professionals seeking affordable housing options. HMOs offer cost-effective solutions due to the shared nature of living spaces, making them an appealing choice for individuals on a tight budget.

Recent market data, by Amber Student Accommodation Report Q1 2023, unveils the impressive landscape of HMO investment. The UK's HMO market valuation approximates £26 billion, encompassing 870,000 properties in 2022. On a broader scale, as per Statista, the United States multifamily sector which can be considered as the broader equivalent to the UK’s residential PRS sector boasts a valuation of $487 billion as of 2021. These figures serve as a testament to the robust potential of HMO student housing investments on both sides of the Atlantic, underscoring its relevance and scope within the B2B real estate industry.

Difference Between PBSA, BTR, and HMO

As an investor looking to delve into student housing investments, there are a few aspects of each property type you need to consider. Following are the differences between PBSA, BTR, and HMO as per location, target audience, amenities, management responsibilities, and investment preferences, with the overall trend in PRS. Leverage these characteristics to get the most out of your investment in student accommodation.

1. Location

The location of these accommodations plays a pivotal role. PBSA properties are strategically situated near educational institutions, enhancing convenience for students. BTR developments can be found in various areas, not restricted to academic locales. PRS properties are situated across diverse locations to cater to a wide spectrum of preferences and requirements. On the other hand, HMOs are often strategically placed in areas for affordable housing and access to amenities. The strategic allocation of these accommodations underscores the tailored nature of each property type, catering to the unique needs and lifestyles of their respective target demographics. These factors also play a significant role in determining their suitability as a student housing investment avenue for each investor.

2. Target Audience

An essential aspect for anyone looking to make a real estate investment in the rental market is knowing your audience. PRS accommodates a diverse range of tenants, spanning from young professionals to families, offering a comfortable and adaptable living space. PBSA provides a specialized focus, catering to students looking for an enriched learning atmosphere. If community living and a sense of belonging are what you desire, BTR is designed to appeal to families and professionals alike, fostering a strong sense of community. Lastly, the HMO option is ideal for those who prioritize cost-effectiveness and are open to shared living arrangements, making it an attractive choice for budget-conscious tenants.

3. Amenities

The PRS offers a variety of unit types to meet the diverse preferences of tenants, and therefore a wide range of investment opportunities. PBSA is a canvas for student-centric needs, often characterized by compact and clever design solutions. It thrives on efficiency, delivering snug yet functional spaces that resonate with the student lifestyle. This variety caters to the diverse demands of young professionals and families seeking quality rental accommodations. In contrast, for those who value community living and a sense of belonging, BTR properties offer an ideal setting, catering to both families and professionals alike. HMO showcases a unique paradigm, with single properties partitioned into multiple rooms for individual tenants. This flexible arrangement strikes a balance between communal living and personal space.

4. Management Responsibilities:

In PRS, a range of management approaches is observed, with individual landlords, property management firms, and small-scale investors collectively overseeing accommodations to provide a diverse array of rental options. PBSA properties are efficiently managed by specialized student housing management companies, focusing on delivering services tailored to students' needs and enhancing their living and studying experiences. The streamlined management of BTR properties by a single entity, often a dedicated property management firm, facilitates cohesive oversight, ensuring that tenant needs are met, and properties are well-maintained. The popular student housing investment options, HMOs and PBSAs employ diverse management strategies, with landlords, property management companies, and specialized HMO management services to actively manage shared living spaces and ensure tenant satisfaction.

5. Investment Preferences

The PRS opens doors to an expansive array of residential rental properties including student housing investment prospects, catering to a wide spectrum of tenant preferences. PBSA stands out as a magnet for those with a keen interest in student housing markets and the bustling landscapes of university towns. In the sphere of BTR, institutional investors find an enticing avenue that aligns with their pursuit of steady, enduring income streams over the long term. The HMO attracts distinct groups of investors who are enticed by the potential for elevated rental yields that come naturally with the concept of shared living arrangements. These aspects of each sector need to be understood by everyone looking to invest in student accommodation.

Conclusion

These diverse student housing investment options - PBSA, BTR, and HMO - provide a comprehensive menu of choices for discerning real estate investors. PBSA offers a tailored academic environment, making it an attractive proposition for those interested in the student housing market. PRS caters to a broad tenant base and reflecting changing market dynamics, provides a flexible avenue for those seeking diversified rental income streams. BTR developments, focused on community and long-term stability, beckon institutional investors in search of enduring returns. Meanwhile, HMO properties, with their shared living concept, appeal to budget-conscious investors looking to tap into the demand for affordable housing. In this array of student housing investment avenues, investors can carefully select the property type that best resonates with their investment strategy, capitalizing on opportunities that are tailored to their specific needs.

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