A lot of new entrants have moved into the sector and while investor appetite remains robust, it has become more important for developers to be able to differentiate their product from the competition if they are to successfully let and exit from a scheme.
At Maslow, we like the PBSA sector and have actively sought to increase our exposure to it by funding the development of some 2,500 beds with an average debt size of £20m in the past three years. Our view is that student accommodation is a defensive asset class, year-on-year rental growth continues to move in the right direction, operating costs are well defined and there are plenty of institutionally backed platforms looking to buy built stock.
We have funded schemes across the UK and have seen a number of these developments go through the lifecycle. What has become clear to us is that schemes not only perform differently based on which city or town they are in, but that new-build schemes within the same university city or town can perform differently. With that in mind, I thought it would be worth sharing what we perceive to be some of the key differentiators in terms of whether a scheme is successful versus existing stock or, competing new-build PBSA schemes.
- Maslow eyes acquisition of further loan books
- Emma Burke joins Maslow Capital
- Assetz Capital provides £6.4m to support Nottingham PBSA scheme
Affordability is key in any market, but has become more of an issue in the past couple of years in the student sector as competition increases and more beds are developed. Generally speaking, schemes that have performed better from a lettings’ perspective have a good mix of more affordable en suite rooms as well as studio accommodation. It is not necessarily about being ‘cheap’ in an absolute sense, but more that the product is right for the location (some areas digest studio supply better than others) and that the rents being proposed are reflective of what a scheme provides for in terms of specification and amenities.
Based on what I have seen during my time at Maslow, micro location is one of, if not the biggest, differentiators in terms of whether a scheme will ultimately be successful or not versus competition. I have seen well-located schemes with an average specification, or no amenities, outperform higher-specification schemes that are in comparatively worse locations. Being well located does not necessarily mean being right next to the university. Each town or city will have its own dynamic, but broadly speaking, it is important to be in easy reach of the university, amenities and nightlife.
Brand — whether at the developer or operator level — can also be a key differentiator. From a developer perspective, it’s important to try to make their product stand out versus the rest of the market. There are a range of developers Maslow has worked with that are exemplary at this. These developers have been able to build a brand students recognise as being high quality by ensuring their product is distinct, but consistent across the various locations they have built in.
There are an ever-increasing number of third-party operators of PBSA schemes. At the risk of stating the obvious, it helps to select one with a proven track record (preferably in the same locality as the subject development) and the infrastructure to deliver lettings and manage the student experience sufficiently.
And finally, being proactive in terms of letting beds is key. Being a development funder, we get a good insight into lettings pace and occupancy rates in year one. Year one is the hardest year in terms of lettings, because a developer won’t have a finished building to show students around, nor will they have the benefit of repeat bookings to underpin occupancy. There are ways to mitigate against the fact that you do not have a finished building students can tour. Whether that’s a show flat on site or a virtual tour on a website, both solutions are good substitutes for a finished building and offer students the opportunity to get a better sense of where they will be living. In our experience, schemes that help students visualise where they will be living tend to do better than competing new-build stock coming online that doesn’t.