PBSA & BTR: Successful Student Housing Synergy in 2023?

The student housing market is constantly traversed by dynamic industry scenarios and challenges. As the insufficient supply of suitable and affordable housing options for students remains limited, the market is on the brink of a long-term problem. The rapid growth of enrollment numbers, high competition between on-campus and off-campus housing options, and shortage in the supply of student beds will continue to linger for the coming years.

The construction of purpose-built student accommodation (PBSA) beds has lowered immensely in 2023. According to CBRE, major universities across the UK are being challenged by an enormous shortage of nearly 350,000 beds in purpose-built student accommodation due to the increasing demand by students for quality housing. Moreover, a supply gap of 106,000 beds has been observed in the capital region of Greater London. On a global scale as well, the sector faces a huge shortfall of student beds.

Tracing Parallels for BTRs & PBSAs: Where Do the Two Meet?

Purpose-built student accommodation, known as PBSA in the student housing market, is a popular type of student housing built specifically for this target group to successfully meet their expectations and demands. On the other hand, build-to-rent or build-for-rent (BTR) is an upcoming rental sector, which combines luxury apartment living with convenience and community.

As major economic challenges continue to hinder the growth of the market, there is a great opportunity for the build-to-rent (BTR) sector to flourish. Even though the BTR and PBSA sectors cannot possibly merge since they primarily cater to different audiences, the model of the BTR sector can be adapted by global PBSAs to churn out new growth and operational opportunities.

• The build-to-rent sector in real estate, alongside the likes of co-living spaces, is opening new doors to boast high-quality student accommodation choices for students in the proximity of the major universities in a particular region.
• The PBSA sector is predicted to face a deficit of student beds by 2026, adding heavily to the student housing crisis (Source: HESA). Hence, to successfully cover the gap between the demand and supply of student beds, understanding BTR capabilities is expected to bring an improved number of accommodation choices for international students.

Should BTR Adapt to PBSAs to Thrive in Student Housing?

As major economic challenges continue to hinder the growth of the market, there is a great opportunity for the build-to-rent (BTR) sector to flourish. Even though the BTR and PBSA sectors cannot possibly merge since they primarily cater to different audiences, the model of the BTR sector can be adapted by global PBSAs to churn out new growth and operational opportunities.

• High-Quality Housing: The build-to-rent sector in real estate, alongside the likes of co-living spaces, is opening new doors to boast high-quality student accommodation choices for students in the proximity of the major universities in a particular region. On the other hand, this sector usually surfaces various conflicts between two tenant groups due to dissimilarities.
• High Demand Market: The PBSA sector is predicted to face a deficit of student beds by 2026, adding heavily to the student housing crisis (Source: HESA). Hence, to successfully cover the gap between the demand and supply of student beds, understanding BTR capabilities is expected to bring an improved number of accommodation choices for international students.

• Innovative Housing Initiatives: As the PBSA construction pipeline struggles, there is a need for more innovative housing models. One promising avenue is BTR which has similar characteristics as a PBSA but is more suitable for a different set of target groups. BTR if used and developed wisely, can prove to be instrumental for the student housing market. This has the potential to enhance a student’s university life as housing plays a pivotal role in adding to the overall experience of student tenants.
• Resilient PBSA & BTR Sectors: Interestingly, both PBSA and BTR have exhibited strikingly similar characteristics, showcasing their resilience even during downward market trends in comparison to other real estate assets. This remarkable performance has galvanized investors, leading to a surge in investments within this segment, not only in the UK but also across the USA and Australia.

PBSA & BTR Convergence: Innovative Student Housing Approach in 2023?

The BTR sector in the UK has reached a staggering valuation of £56 billion in 2023, up from £35 billion in 2019 which denotes a significant 60% increase in the past 3 years. Not just that, the BTR pipeline is forecasted to double in size by 2028, reaching an 82% increase to a £102 billion valuation. (Source: Property Investor Today). Here are a few interesting insights about the BTR sector adapting to the best practices of PBSAs to augment growth in student housing:

1. Active Investments by Student Housing Investors: There are several instances where PBSA investors have been witnessed to be actively investing in BTRs for possible growth and expansion. Here are a few examples in recent times:

• ‍United Kingdom: Unite Students, the UK’s leading owner, manager, and developer of student accommodation, a 178-unit purpose-built build-to-rent property in Stratford, East London for £71m by the name of 180 Stratford, marking the beginning of a successful collaborative effort of both sectors. This acquisition will test its operational capability to extend its accommodation offer to young professionals and retain them as tenants.‍
• United States of America: Harrison Street has developed and acquired more than 27 built-to-rent style student housing communities comprising 19,000 beds since 2007. It further aims to invest up to $1.5 billion in subdivisions for multiple rental homes in Austin, Denver, Orlando, etc. through a joint venture with Core Spaces.‍
• Australia: Scape Australia has announced a joint venture with Dutch investors APG Asset Management and Bouwinvest, with plans to deliver a minimum of 10,000 build-to-rent apartments by 2030 with appropriate transport links.

2. Heavily Regulated: A lot of PBSA supply is legacy stock, with multiple owners being faced with the task of upgrading their buildings from an ESG and fire safety standpoint or risk assets becoming stranded.

• For those without the cash and looking to sell, the response from investors is often that it’s too expensive. With such a heavily regulated sector, however, are benefits of the organized sector.
• There are several instances in which PBSA investors are actively investing in the built-to-rent sector as an expansion strategy as it exhibits similar tendencies for rental yield as PBSAs.
• The alternative is to increase capital investments for existing PBSA assets, but the daunting reality is that any building upgrades will need to play second fiddle to Environmental, Social, and Governance (ESG) and fire safety regulations.

3. Inclusive Bills of Essential Amenities: BTR can definitely adapt better from PBSA. A recent survey by Knight Frank found that students living in PBSA were observed to be paying 33% less due to all-inclusive bills as compared to the private rented sector.

• Moreover, Rightmove observed a 36% increase in inquiries from students seeking inclusive bills with their accommodation, further solidifying the importance of all-inclusive bills in the industry.
• This is a strategy that is worth implementing and maintaining going forward in both PBSAs and BTRs, to attract a wider audience to student properties.

4. Digital Payments & Maintenance: In the wake of the digitalization of the student housing market, student tenants now expect to make payments, bookings, and even maintenance requests through digital apps for smooth functioning. With the right technology boost, property management groups have already begun adapting to automated features for rent agreements and other operations. Understanding the prime requirements of new target groups, BTR further needs to adapt to newer practices in order to meet the preferences of students.

Wrapping It Up

The BTR boom is expected to emerge as a large-scale development boost to the student housing market if the sectors work in unison to provide better housing options for students. Moreover, research by Property Investor Today predicts a total of 380,000 BTR properties by 2032, showcasing a lucrative investment opportunity for investors to potentially gain profitable returns. This can be leveraged by getting in touch with amber to understand market dynamics in both the BTR & student housing market here by listing your property with amber.

Overall, the PBSAs and the BTR sector together have the potential to bring positive impacts on the market, promising the growth of a diverse range of housing options for students. Moreover, both sectors can improve operations through careful planning, partnerships, and execution. However, for this strategic solution to work practically, built-to-rent properties and other types of tenants need to adapt to newer audiences for a successful crossover between BTRs and PBSAs.