Brian Welsh, Nido Student

Why PBSA will still be an A* investment



Since late-teens received their A-Level results, the mainstream media has been focusing on their algorithm-produced grades.

Investors in the purpose-built student accommodation sector (PBSA), however, will nervously await the figures for the number of students our universities will welcome to their campuses this autumn. 

The narrative is that, in the face of continuous travel restrictions, uncertainty over future lockdowns and the prospect of a year of online-only lectures, the PBSA sector faces dwindling tenant numbers, thus declining rental income and returns on investment. 

While recent musings about the fate of the sector would have you believe PBSA has slipped to the bottom of the class, this is far from the case. PBSA is and will remain an A* investment. 

The strong, long-term drivers of the sector are widely accepted and need little rehearsing. 

The number of students attending university has increased by nearly 120,000 since 2012/13, according to research from JLL. The result has been demand far outstripping new beds entering the market — for every new PBSA bed, JLL say that there are 1.4 new full-time students. Coupled with a limited supply pipeline in prime university cities and towns, investors have received a stable, cyclical-resilient income stream, and enjoyed yield compression as PBSA asset values have been inflated. 

However, the hot question at present is whether the coming academic year will be so damaging that many PBSA investors will have their long-term viability undermined, with question marks hanging over the ability of borrowers to meet debt servicing costs as their own income streams diminish.

Although international students only make up 20% of UK university intake, they are the main market for PBSA, given the additional amenities and convenience PBSA typically offers in their new home-from-home. So, their potential absence is a worry. 

Yet, in its most recent update on its live cycle data, data from UCAS, the central operator for applications to UK universities, showed that there were no red flags for international students withdrawing or deferring. 

A closer look at the statistics also shows that the number of applicants outside of the EU to UK universities increased by 12% from 49,610 to 55,380 this year. Meaning that if one in ten of these students chose not to come, numbers are still up from last year and only slightly decreased should the number grow higher. 

There is also every chance that an increasing premium will be placed on PBSA by individual students and entire universities for two key reasons. 

Firstly, most universities are implementing a ‘bubble’ policy for the academic year, which will treat a student’s household (in the case of PBSA, their floor) as their bubble. These are the people whom they will be expected to eat, socialise and study with predominantly, with a majority of lectures online, library capacity heavily reduced, and campus social areas restricted. 

The result is a need for a space that is far more than simply where students go to sleep and heat up the odd ready meal. 

That is where PBSA comes into its own, with the majority of developments up and down the country offering unrivalled amenities. Communal spaces that can double up as an in-house library in the day and social space in the evening mean that students won’t be forced to work isolated in their rooms without lectures and the library to break up the day. 

For example, a new survey from the London School of Economics (LSE) which looks at the experiences of working from home throughout the pandemic, found that for those who were forced to sleep and work from the same room could experience problems with mental and physical health. Dedicated working and social spaces in PBSA can ensure students don’t encounter the same this year.

And while it is easy for us all to remember our university days as being spent in the pub, the truth is, the fondest memories for many were forged in common rooms and corridors. The dedicated social spaces of PBSA — often including cinemas and games rooms — will ensure those memories don’t have to wait until post-pandemic to be created. 

Secondly, there is a real opportunity for larger PBSA operators to set themselves apart as ‘responsible operators’. As there will be a need throughout the year — especially when universities want to get campuses fully operational again — to ensure campuses are Covid-secure, this will plausibly require in-accommodation testing, temperature checks and dedicated self-isolation spaces — which many universities simply lack the infrastructure for. 

At NIDO, we will be looking to implement such an approach across our portfolio — spanning nine of the UK’s finest university cities. Doing so will not only make students’ lives easier and safer, but add another string to the bow of PBSA’s resilience. 

The long-term strengths of the PBSA sector are widely accepted, but in the face of the pandemic-induced uncertainty in higher education, many have questioned the short-term resilience of the sector. We at NIDO believe PBSA will not just see out the short-term volatility, but quite possibly thrive in it. 

By making the coming academic year simpler, safer and more fun for students, PBSA will be a far cry from the bottom of the class in investment.


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