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Positive demand for undergrad accommodation boosts PBSA sector

The purpose-built student accommodation (PBSA) sector is showing signs of recovery following market disruption caused by the Covid-19 pandemic, according to CBRE’s PBSA sector update.

This bounce-back is buoyed by positive demand for undergraduate places and an ‘acute’ undersupply of student accommodation exacerbated by construction delays.

Investment into PBSA – which was robust at the start of the year but stalled throughout lockdown – has picked up since restrictions were lifted and material uncertainty clauses were removed. Since March, a total of eight deals (£280 million of investment) have now been agreed, and an estimated £750 million-£1 billion worth of investment is in the pipeline that is likely to transact before the end of September.

Scott Cabot, associate director of research at CBRE, explains: “PBSA has provided superior returns at lower volatility when compared with the other mainstream real estate sectors over the past several years.”

“The sector will continue to be supported by strong underlying fundamentals, and we expect to see increased levels of investment and outperformance relative to other real estate sectors going forward.”

Despite concerns that student numbers would fall in the 2020/2021 academic year, recent surveys have indicated that most students still favour attending in the current year over deferral. UCAS data showed a 2% year-on-year increase in overall applicant numbers in June 2020 and a significant increase in applications from international students. Applications for nursing degrees are up 14% year-on-year.

In addition, bookings for the 2020/2021 academic year are still growing for many operators, now in-line with the previous cycle. Headline rents at the portfolio level have increased by approximately 3% year-on-year, compared with 2019/2020.

According to the report, all the main university markets remain supply constrained, with the halted construction during lockdown delaying the delivery of new developments. Although sites are progressing, the PBSA sector is ‘heavily reliant’ on completing in September.

With the focus currently on delivering sites that are close to practical completion, the progression of other developments will be delayed – further compounding the under-supply in certain markets.

CBRE expects yields to remain broadly stable in the short-term, as operators are reporting robust rental growth at a portfolio level and rental guarantees will help to underpin pricing in multiple instances.

Tim Pankhurst, senior director of student accommodation at CBRE, comments: “The student market was in great health prior to Covid-19 with some of the best student and investment metrics on record. The pandemic has impacted demand for accommodation, but this is expected to be limited to the 20/21 academic year.”

“With such strong underlying market fundamentals and resilient track record for total returns there is the potential for a strong bounce back in September 2021, if not sooner depending on how the next few months pan out.”

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