Why Is Purpose-Built Student Accommodation (PBSA) One of the Fastest-Growing Market Segments in Real Estate?

The real estate industry is vastly dynamic, holding the fundamental segments of residential, commercial and industrial markets under its umbrella. Out of these, the residential class has remained a flourishing sector due to its high demand and returns. One of the factors influencing this prosperity is purpose-built student accommodation or PBSA student housing, owing to its profitability aspects.

With the increasing number of students worldwide, there is a growing demand for quality student accommodation options. UK PBSA market alone accounts for US$ 73 billion in revenue, which caters to the specific needs of students seeking accommodation, according to amber. This premium asset class also promises high rental returns and long-term yield. So, let’s explore the reasons why PBSA student housing is one of the fastest-growing segments of the real estate market in 2024.

1. Identifying PBSA Investment Trends

The dynamic nature of the real estate market has contributed significantly to the growth of investment activities in the purpose-built sector. International students migrating to higher education destinations like the UK, the US, and Australia are facing a shortage of housing despite comprising 13,676 PBSA facilities globally. Hence, it is an attractive investment opportunity in PBSA real estate to reduce the demand-supply gap:

• Growing global student population fuels the demand for purpose-built student housing: As the number of students pursuing higher education continues to rise, the demand for suitable housing near educational institutions is on the upswing. Also, as the rents are constantly rising, there is a higher possibility of attaining high ROIs.

• Consistent demand translates into a reliable income stream: Unlike other categories, the demand for student accommodation remains relatively stable throughout economic cycles. This stability allows investors to enjoy a consistent cash flow and reduces the risk of vacancies, making it an attractive option for those seeking stable returns.
• Potential long-term capital appreciation with university expansions: Universities worldwide are expanding their campuses to accommodate the growing student population. This expansion leads to increased demand for student accommodation, and well-located PBSA properties have the potential for long-term capital appreciation as the value of the properties rises in tandem with the university's growth.

2. PBSA Student Housing: Demand vs. Supply Imbalance

The recent real estate trend narrates that there is a massive gap in demand and supply, the reason being an increase in the number of applications. The demand for purpose-built student accommodations in the UK is usually really high. Due to the dynamic global market, education and upskilling have become increasingly important in recent years to secure a brighter future. According to Amber’s “Student Housing Partners Report 2023”, the UK experienced 75% growth in student visa applications in the UK and the European Union this year. Most universities in the United Kingdom have extended their deadline for application submission to optimize the intake of diverse students.

• PBSAs address the imbalance by providing purpose-built, conveniently located housing: These properties are purposefully designed and built to cater to the specific needs and preferences of students. These purpose-built accommodations offer modern amenities, proximity to educational institutions, and a conducive environment for studying and socializing, effectively addressing the shortage of quality student housing options.
• High occupancy rates potentially have excellent rental yields: The demand for quality student accommodation is consistently high, resulting in high occupancy rates for such properties. With more students seeking comfortable and well-equipped living spaces, investors can enjoy excellent rental yields from PBSA, maximizing their returns on investment.

3. Benefits of Investing in a PBSA Property

Investing in purpose-built student accommodation offers a multitude of investment benefits for real estate investors. As the demand for quality student housing continues to surge globally, purpose-built student accommodation presents a unique opportunity to capitalize on the growing education sector. From stable rental income and reduced maintenance costs to diversification within real estate portfolios, investments in these properties promise attractive returns owing to the characteristics of a resilient asset class.

• Stable rental income with long-term contracts or leases: One of the significant advantages of investing in PBSAs is the stability of rental income. Many properties in this category secure long-term contracts or leases with educational institutions well in advance, ensuring a consistent cash flow for the investors. This stability reduces the risk of vacancies and provides a reliable income stream to property management groups.
• Reduced maintenance costs due to purpose-built & designed properties: Such properties are purpose-built and designed to cater specifically to the needs of students. This means that maintenance costs are often lower compared to traditional residential properties. With features such as durable furnishings and communal facilities, the need for repairs and maintenance is minimized, enhancing the overall profitability of the investment.
• Diversification within the real estate portfolio: Investing in PBSA offers diversification within a property portfolio. The performance of an operating purpose-built student accommodation is not directly tied to broader economic factors, making it less susceptible to market downturns. This diversification helps investors mitigate risks and protect their overall investment portfolio.

4. Growth in the Number of PBSA Student Beds

The purpose-built student accommodation market in the UK is experiencing a significant boom, driven by the growing student population and increasing demand for quality housing options near universities. This section delves into the expected growth and provision rate of PBSA in the UK, shedding light on the factors fueling its expansion and the implications for investors and students alike.

• Growing student population and demand: The UK's higher education sector is witnessing a steady rise in student enrollment, both from domestic and international students. As the number of students continues to grow, the demand for purpose-built accommodation near universities is surging.
• Increasing provision rate of PBSA: Responding to the soaring demand, developers in the UK are actively investing in student housing projects to meet the housing needs of students. According to “Amber’s Global Student Housing Report”, the provision rate of PBSA is steadily increasing, providing more options for students seeking modern and well-equipped accommodations.
• Implications for investors and students: The expected growth and provision rate of UK PBSAs offer promising implications for both investors and students. Investors have ample opportunities to capitalize on this thriving market, enjoying stable rental income and potential capital appreciation. For students, the availability of high-quality student properties enhances their university experience and provides a safe and conducive living environment.

5.  Focusing on Quality

In the fiercely competitive real estate market, the focus on quality has become paramount for developers and investors alike. Whether it's residential, commercial, or purpose-built student accommodation, providing top-notch amenities and living experiences is a game-changer.

• Higher expectations for safe and comfortable living spaces: Today's students have higher expectations when it comes to their accommodation. They prioritize safety, comfort, and convenience, seeking living spaces that offer a conducive environment for studying and socializing. Developers understand these preferences and strive to provide high-quality facilities to attract more students.
• Student properties offer inclusive high-end amenities: PBSA student housing properties are equipped with modern amenities and facilities that cater to the needs of students. These may include fully furnished rooms, well-designed communal spaces for socializing, dedicated study areas, high-speed internet access, fitness centres, and on-site laundry facilities. By offering such amenities, PBSA properties stand out in the market and attract more students, ensuring high occupancy rates for investors.
• Competitive advantages for investors with high-value properties: The focus on quality in PBSA properties not only appeals to students but also provides competitive advantages for investors. Students usually prefer to choose accommodations that offer a comfortable and convenient living experience, increasing the demand for well-designed PBSA properties. This demand ensures high occupancy rates and enhances the overall profitability of the investment for investors.

6. Seasonal Counter-Cyclicity in PBSAs

Seasonal counter-cyclicity is a unique characteristic that sets purpose-built student accommodation apart in the real estate market. As an investment segment, PBSA showcases remarkable stability and resilience, remaining unaffected by broader economic cycles. Operating in a significantly recession-free market, it potentially becomes an appealing option for investors seeking insulation against market volatility and consistent returns, irrespective of economic conditions.

• Stability of demand throughout economic cycles: One of the notable characteristics of the PBSA sector is its seasonal counter-cyclicity. While other real estate sectors may experience fluctuations and market downturns, the demand for student accommodation remains relatively stable. Students continue to pursue higher education regardless of economic conditions, creating a consistent and reliable demand for PBSA student housing properties.
• Provides insulation against broader market volatility: The counter-cyclical nature of purpose built student accommodation provides a level of insulation against broader market volatility. During economic downturns or challenging times in other sectors, the demand for student accommodation remains resilient. This stability can help investors safeguard their investments and reduce the impact of market fluctuations.
• An attractive option for risk-averse investment: PBSA's seasonal counter-cyclicity and stability make it an attractive investment option for risk-averse investors. By diversifying their portfolio, investors can mitigate risks associated with other sectors. Moreover, they can benefit from the reliable and consistent income stream that the student accommodation market provides.

7. Favourable Government Policies & Regulations

Government support plays a pivotal role in propelling the success of purpose-built student accommodation investments. Recognizing the importance of a robust education sector, governments worldwide offer incentives and favourable policies to foster the development of student housing.

• Governments offer incentives and support for the development of student accommodation: Governments around the world recognize the importance of a well-supported education sector and often provide incentives and support for the development of student accommodation. These may include favourable policies, grants, or tax incentives for investors in PBSA properties. Government support further boosts the attractiveness and profitability of PBSA investments.
• Favourable policies, grants, and tax incentives encourage investment: Government policies and incentives create an enabling environment for investors in the PBSA market. These measures can include streamlined planning processes, financial assistance, and tax benefits, attracting more investors to this lucrative sector. By taking advantage of these incentives, investors can maximize their returns and mitigate risks associated with their investments.
• Increases the attractiveness and profitability of PBSA investments: Government support enhances the overall attractiveness and profitability of the sector. By providing favourable conditions and incentives, governments help create a conducive investment environment, encouraging more investors to participate in this market. This support further solidifies the potential for stable returns and long-term growth in the purpose-built sector.

Expand Your Profit Portfolio with PBSAs

The rapid growth of purpose-built student accommodation can be attributed to strong investment fundamentals, a demand-supply imbalance, attractive benefits for investors, a focus on quality, seasonal counter-cyclicity, and government support. With a global housing solutions provider like amber PMGs and expand their investment portfolio.

With a global increase in student populations and a shortage of housing options, investing in PBSA student housing has multiple benefits. From attaining a stable income stream to the potential for long-term capital appreciation in the real estate realm, investors can expand their PBSA portfolios and enjoy high rental returns. Grab this opportunity, maximise your investment potential and list with amber today!