andrew southern

Bucking expectations: What 2021 holds for the PBSA sector



You only have to look at the number of overseas students coming into the UK this year to know that the student accommodation sector as a whole will sail through this crisis.

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Education is one of our best exports, after all. In fact, the number of students from outside the UK and EU has hit a record high of 44,300 for the new intake this autumn, according to UCAS — a 9% rise. 

Compare that performance with the fears many had for the sector when Covid first erupted and it’s clear the PBSA market has far exceeded expectations. 

As late as July, some people were still asking whether the coronavirus could demolish the sector. It’s true that there were short-term risks to revenue, but the long-term prospects couldn’t be better. 

In terms of demand for higher education, students are keener than ever. According to the UCAS September update, students with a confirmed place reached a high of 515,650 — 4% up on the previous year.   

The CBRE has recently underlined this strength, highlighting the sector’s low volatility — something sought after by funders  — and the fact that studies have shown that most international students don’t intend to be put off studying abroad.  

This is important to us because students from China and South-East Asia account for over half of Future Generation tenants; they are typically wealthier and naturally gravitate towards premium brands.

I went on a whistle-stop, seven-day tour around six different destinations in China last year. I was so impressed with student rental provider U-Homes and I took the opportunity to find out what the priorities are for Chinese students. Safety and security came top, followed by the quality of the WiFi, air-conditioning and accommodation, and, lastly, the calibre of communal areas. As a business, we make sure that we focus on all these factors in both the consumer experience and the accommodation. 

The reason they come to the UK, though? The ‘Brit pop’ culture, the fashion, the variety of things to do and, of course, the quality of the learning experience.

It emphasises how secure this sector is for investors — offering bricks and mortar assets and a steady stream of customers drawn by Britain’s international reputation for top-flight education. The UK’s historic place in the world also continues to provide a huge draw, while the weaker pound has helped to make it more affordable.

Even domestically, the number of homegrown students is still rising. The proportion of 18-year-olds going to university reached a record 36.4%.

A recession also tends to result in a rise in student numbers. A Covid-inspired recession will be no different, and this counterintuitive payoff could last another couple of years, despite the start of this academic year presenting less than ideal conditions for Freshers’ Week… Very different to mine!

In terms of delivery, 2021 is not going to be a case of ‘more of the same’ for PBSA. There are many more providers now than there were five years ago, and competition always brings about a mixed bag in terms of quality and investment performance. We routinely monitor where providers are building and some cities are already overly saturated, but one other after-effect of the pandemic is going to be a shift in design. This is likely to increase competition for Future Generation and others like it which are providing higher end products, because space and value-added amenities are going to be much more important to students concerned about future lockdowns. 

Cleanliness and site safety, with more on-site staff, will also rise up the agenda in the new normal. It’s what parents — who are usually paying the bills — have come to expect, but this all comes at a cost. It’s going to be interesting to see how designs shift in the next 12 months as some providers move away from fairly bland offerings, and attempt to repurpose spaces in existing schemes, while still trying to cling to their profit margins.  Our design theme, Future Generation V2, puts extra stress on the hospitality offering that is now an essential element.

While the UCAS statistics indicate that funders won’t be going anywhere, they are going to become a lot more discerning. Being a tried-and-tested provider will come to count as much as the fundamentals. Those funders and providers using old metrics and expecting the world to go back to the way it was are setting themselves up for a fall. 

Commercial lending rates are already beginning to trend away from the base rate and, although we may see a return of mezzanine finance next year, if senior lenders scale back their leverage, those projects that lack the quality to guarantee good occupancy rates are really going to struggle.

 



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