Navigating 2024: Investor's Interest in UK PBSA Market

As we enter 2024, the UK property market is experiencing extraordinary levels of activity and exciting changes. Investors, developers and homeowners are in the midst of a transformative period marked by changing economic trends and social changes. Student numbers in the UK are at an all-time high; there is no doubt that student accommodation has a huge demand in the UK. However, the number of available beds isn’t keeping up and is being constrained by planning restrictions and viability issues. This means rental growth is set to continue to grow.
In this in-depth analysis, we explore the complex web of factors that shape the student housing real estate market. From the influence of technology to the impact of global trends, we will dive deeper insight the challenges and opportunities ahead. PBSA is the premium asset class of the student housing real estate investment portfolios. Let’s explore the expected market trends, new opportunities, and key factors that will shape the UK property market over the coming year.

‍1. Growing Demand for Medium and Lower Tariff Universities

The UK student population is at an all-time high with the rising number of International students coming from all over the world, and there’s no doubt that PBSA demand will continue to grow in 2024. According to the Office for National Statistics (ONS) demographics, England’s 18+ year-old population is expected to grow by 5% or 30,000 in 2024. Moreover, the demand for University will also increase in 2024. According to the Universities and Colleges Admissions Service (UCAS), applications for university places rose 2% year-on-year in the 2023/24 academic year, although acceptances were slightly lower than the previous year. Higher education enrollment is expected to reach 1 million by 2030, an increase of up to 30% Y-O-Y, according to UCAS. A university application service which urges universities to focus on increasing student numbers.
Non-EU students entirely drove this number, which increased its number by 4% a Y-O-Y to 116,000. Overall, this will lead to a steady rise in university enrollment and a high demand for PBSA. However, the trend has shifted from higher to mid and low-tariff universities. The main reason for this shift is the general drop in A-level grades following the return to exams after the pandemic. Moreover, there was a restriction on entry requirements by some universities following over-enrollment during the pandemic period. It is anticipated that this trend will continue in the coming years, which will lead to an increase in the number of PBSA beds required in the regions where these mid and low-rate universities are located.

The projected rise in UCAS enrollment is largely due to a mini-boom in fertility rates, which is projected to increase the 18-year-old population in the upcoming decades. A leading estimate of  457,000 young 18-year-olds could apply for higher education in 2023, an increase of 38% on the current number.  One of the ways to increase funding is to attract more international students, as they tend to pay more than domestic students. UCAS predicts that by 2030, the number of international applicants will have risen by 60%, from 150,000r to 240,000 annually.

2. High Occupancy and Strong Return

The lack of new PBSA developments will continue into 2024, as completion rates in 2023 were at a record low, adding to an estimated 580,000-bed shortfall across the country. Drivers such as high construction costs, increasing PBSA planning constraints, higher debt levels, and changes to building regulations will continue to impede new development in 2024. 
In addition, supply will be further restricted as some legacy university stock will require significant modernisation in order to meet student demand and remain competitive. Therefore, there will be more scope for repositioning legacy PBSA assets in 2024, especially where a new build would not be feasible.

The challenges faced by the private rented sector are set to put further upward pressure on PBSA’s demand in 2024. According to our research, an estimated 400,000 privately rented properties have been sold in the last few years. This will lead to a shortage of houses for multiple occupations (HMOs), which are a key choice of accommodation for many students. 
PBSA investment was strong in 2023 despite strong challenges. It is expected to continue strong in 2024 as debt markets stabilise, inflation slows, and the economy improves. The sector’s operational metrics and revenue growth prospects will also continue to support investment. Moreover, investors will also be encouraged by the industry’s robust operational metrics and revenue growth opportunities. Occupancy in 2023/24 was the strongest with many schemes booked at 98% by Spring of 2023. This is expected to continue in 2024, supporting strong rent growth forecasts. Unite expects rent growth to be 5%+ in 2024/25 for the letting cycle. 
Furthermore, for 2024, investors will also be more focused on particular opportunities. For instance, the management of high-risk, high-reward assets will provide significant returns and will encourage investment in markets with strong fundamentals.

‍3. New Safety Regulations and Energy Efficiency

The PBSA sector will face some challenges in 2024 due to new Building Safety Regulations and proposed Energy Efficiency Standards. The 2022 Building Safety Act introduces new requirements for residential buildings with a focus on safety. As two-thirds of the UK's PBSA stock was constructed before 2015, the majority of buildings will not be able to comply with the latest safety requirements. For instance, if a building is more than 18m in height, it will require a second staircase.
In addition, investors and lenders are also increasingly focusing on energy-efficient assets in order to meet their environmental and sustainability objectives. The goal is to focus on achieving net zero in student accommodation by 2030, but specific energy efficiency requirements are not specified in the information provided. There is no clear trajectory for increasing minimum energy efficiency requirements in commercial property. Boosting PBSA supply is a priority in 2024, but there is no specific information on environmental regulations.
Moreover, there is a significant shift in sustainable student housing and heating systems in the UK. Green construction, modular building, and the use of renewable energy are all on the rise. Green construction investment is expected to increase by £90 billion over the next decade. Ground Source Heat Pump (GSHP) and geothermal for domestic heating are also becoming more popular. This is some news on a proposed ban for new gas boilers by 2025, which is in line with environmental objectives.
From an investment point of view, this will shift investment away from less efficient assets that do not meet current requirements and towards future financing opportunities for new developments. For owners, these new requirements will require significant capital expenditure to modernise and refurbish existing buildings over the next year.

In summary, there are many reasons to invest in UK PBSA student accommodation. Demand for housing is on the rise, yields are stable, and diversification is possible. For strategic investors, PBSA is a great way to grow their portfolio. Investing in student accommodation requires careful analysis of market dynamics, risk mitigation, and the provision of affordable and comfortable accommodation. PBSA is one of the most profitable real estate asset classes. Exploring the Dynamics of Purpose-Built Student Accommodation (PBSA) to know more about what PBSA has to offer. List your property with amber and expand your PBSA portfolio through international students from major source countries.