There will be a growing demand for lower-cost PBSA, but not lower spec, predicts Unipol CEO



Last week, Development Finance Today collaborated on a virtual roundtable with Beaufort Capital, on the topic of ‘How student accommodation will evolve by 2030'.

The event was held on 14th April and was run by Beaufort Capital managing director, Mark Quigley.  

Over 160 people tuned in to watch the live discussion. 

The panel also included four PBSA experts: Joanne Winchester, executive director at CBRE; Martin Blakey, CEO at Unipol Student Homes; Martin Corbett, CEO at Homes for Students; and Richard Simpson, CEO at Watkin Jones plc.

The event kicked off with presentations from all five panellists that provided their views on the PBSA sector from a funding, developing, operating and valuing perspective. 

Following this, the panel answered questions from the audience, including what lessons the student accommodation sector had learned during the pandemic and how this would inform future operational progress.  

Richard said the PBSA sector was “exemplar” in its sensible and considerate response, which included providing rebates, refunds and support, along with working closely with universities, the National Union of Students and local emergency services, which he said contributed to the solution, rather than the problem. 

“If you compare that, generally, to the response in the private rented sector, one of the very first acts of the government as we went into lockdown was to put a moratorium on PRS evictions because they could see that there was almost no responsibility being accepted at all by your typical landlord,” he argued. 

He said that the maturity shown by student accommodation operators during the crisis marked a real “coming of age” for the sector, and demonstrated to universities and stakeholders that it is a “real force for good” for higher education that needs to be embraced.

“We all know that 10-20 years ago, that wouldn’t necessarily have been said . . . I think the whole narrative has moved on significantly, and that’s a great credit to the sector.” 

With regard to potentially reassessing supply vs demand, given the role that HMOs play, Joanne said that the number of HMOs has “probably peaked” as a result of the need to get additional planning requirements for C4 use, and the disincentives around BTL taxation.  

“We’ve probably passed the high watermark of HMOs in most university cities and the number of them is probably decreasing rather than increasing,” she stated.

“I think they’re always going to be part of the landscape because some people will choose to live in shared houses, but I don’t think new ones are being created in any great number.”  

Consequently, she believes it will be down to the PBSA sector to accommodate 18-year-olds and other groups.  

Blakey added that Article 4 has put a “corset” on HMOs and the number of students living in this property type will likely decline, with more returning students living in PBSA. 

“In the HMO market, often you’ve got 50-51-week lets,” he said, whereas PBSA buildings have 42-43-week lets.

“We’ve got a lot to learn about moving to a returning student model, and they tend to be around a lot more than first-year students,” he said, explaining that there will also be a growing demand for lower-cost accommodation — but not lower spec.

“Expectations of PBSA from students are different to those of the little landlord down the road,” he commented. “It’s not a level playing field.”

When discussing the growing threat to the crucial student component from China, considering the rising political tensions over Hong Kong and Xinjiang, Corbett suggested focussing on the domestic demographic going forward, as it is a more affordable product. 

“I think the [higher-end] studio schemes will be safe, but we are certainly targeting other countries apart from China,” he added. 

Mark agreed, and said he was also seeing an increase in students from India, which he said was a “big growth area”.  

When looking at the future, he expects another 10 years of expansion in the PBSA sector. 

“It’s the fact that we’ve got these crumbling estates at universities all around the country and the first, second and third generation stock will, at some stage, be bettered and will need replacement. I still think it’s got a great way to go.” 

You can listen to the full roundtable recording below.

The audience had numerous questions for the panellists during the live event and, while some were answered within the hour, Joanne and Martin Corbett have kindly responded to a few of those that we couldn’t get round to: 

Given the weight of capital flowing into the sector, where are funding yields currently for regional PBSA schemes?

Joanne: This is not straightforward to answer at present. Some funding parties still look at a discount to stabilised, assuming growth, but, more often than not, we are seeing funders underwrite current rents and stabilised yields. Working off today’s rents and yields affords them [some] rental growth, which is difficult to forecast at present, while not overpaying at day one. Where discounts to stabilised values are being applied, assuming growth, for less prime regional locations this would be 25-50 bps — but would be minimal for super prime locations. For further advice on forward funding yields, please contact [email protected]

Given the restrictions on global travel and the proportionally higher contingent of international students coming to study in London as opposed to regional universities, do you think this will negatively impact occupancy in London assets until travel has opened up again (which may not happen in 2021)?

Martin: As you know, international students were restricted in the 2020/21 academic year from coming to the UK because of Covid. This means there is pent-up demand from international students as shown by the increase in applications from non-EU international students. However, we don’t have visibility at this stage of internationals arriving as they are delaying their bookings until there is more certainty over Covid and travel restrictions. So, if they do turn up, its likely to be in large numbers. But, if they don’t, then London and higher-rented PBSA targeted at international students may struggle again.

I would be interested to hear the panel’s views on occupancy levels of their PBSA assets — both in terms of the current booking rates vs last year, and where they expect occupancy levels to be for 21st Sept?

Martin: Bookings for September 2021 are behind last year by around 10% as a result of students delaying bookings to gain more certainty over Covid. Notwithstanding that, UCAS applications for 2021/22 are up by over 8% from last year, and so the expectations are that booking levels will increase significantly during July to September. We are predicting occupancy for 2021/22 academic year to be over 90% across the country and possibly more if the international students turn up in numbers.



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