Here at GSA, we develop and manage student communities that every student feels part of. Our industry-leading nine pillar wellbeing strategy is central to this, supplementing our outstanding physical spaces with a supportive environment that allows students to thrive. We believe this is what sets us apart and is a large contributor to our commercial robustness.
Thanks to our global reach, we have a unique insight to the changing trends and needs of the PBSA segment. We have distilled four distinct trends shaping modern PBSA: market transition to maturity; globalisation of higher education; ESG and public policy.
The transition from emerging to maturing markets
As mature markets (such as UK and USA) progress from conception and delivery through to full stabilisation, we expect to see money recycle from private equity return levels towards more core and institutional investor profiles.
We have seen this play out in the UK for example in transactions such as the consolidation of Unite and Liberty. Operators will look to consolidate their market positions through greater and clearer segmentation of brands, addressing specific customer segments, for example: affordable, mid-market and premium. Some evidence of this is apparent already but no clear market leader has emerged in any of the segments as operators are generally clustered around tight price points.
Over the next few years, we can expect to see a similar process happen in the more emerging European PBSA markets such as Spain, Portugal and France which are still developing intensely into scalable markets. This scale and consolidation will likely free up the more aggressive private equity cash to be utilised to fund developments in more challenging secondary and tertiary markets - both in new cities within existing jurisdictions as well as new geographies where higher returns can be pursued in exchange for that risk.
As this trend progresses, exciting new markets will emerge both in Europe and further afield. Like Spain and France 10 years ago, this will require skilled market-entry capability and experience as well as an emerging locally driven market to create a professional PBSA segment. The balance of international experience and local expertise will be paramount in establishing the asset-class in new markets as well as understanding the core needs of students and the local HEI sector.
An increasingly mobile student population driving change in the market
As the global higher education institution (HEI) sector becomes ever more globalised, international collaboration between students, researchers, teachers and other HEI staff will increase. This will intensify the need for international mobility and for short and long-term stays away from their home institutions. In turn, this will require increasingly flexible tenancies and more tailored, unique accommodation experiences.
As the last year of the pandemic has shown us, it has become increasingly important for accommodation providers to be more flexible to fulfil the changing expectations from residents, and offering short term, flexible lets is set to become the norm, rather than the exception. Our aim at GSA is to provide that flexibility and make those moves easy from country to country.
Factors driving environmental, social and governance change
Greenwashing and CSR have given way to the emergence of ESG as a fundamentally important axis of the PBSA segment in real estate.
There are three major factors behind this change. Firstly, an emerging significant personal commitment from management teams that pervades their professional lives (part of the “whole person at work”) leading to more enlightened management behaviour and corporate citizenship. For example, we are already seeing commitments to net-zero carbon and crucially, this type of corporate activism is measurable in the so-called triple-bottom-line: People, Planet, Profit.
Secondly, this enlightenment is influencing investment institutions as well as debt providers – Kinetic Capital for instance has a firm commitment to student mental wellbeing as part of its lending criteria. Furthermore, access to alternative capital sources such as green loans, green mortgages or funds opens up.
Finally, the increasing prevalence, importance, and access to accreditation such as LEED, BREAM, Fitwell, GRESB will soon have an impact on investment yields. The combination of these three factors creates a mutually reinforcing and beneficial management cycle.
Public-private partnership opportunities
Another big change we may see is related to cost-cutting from higher education institutions, as they focus funding on their core purpose: education and research. This will benefit the private sector as they take up the reins from public provision when it comes to accommodation.
Inevitably, the upper price-point segments will be well served as the clustering effect described above is exacerbated by the high land costs which require higher rents to justify the investment thesis in the first place. We are already seeing this trend at the expense of more affordable price points.
Nevertheless, we believe this will be addressed in the coming years. We can expect policymakers to force, facilitate or favour the creation of a more affordable segment through the promotion of PPP opportunities such as in Spain or the USA; or public policy intervention in rental control - such as in Ireland and Barcelona; or the inclusion of ‘social housing’ elements in buildings as part of the planning process as we are seeing in France and London.
As PBSA shifts towards more private sector ownership and management, more will be done to place the experience, community, and wellbeing of the resident at the core of the overall experience. Our stance and goals have always been to raise expectation and presumption on what a student accommodation can provide for residents, and the gradual shift of ownership from higher education institutions to the private sector allows for much more appropriate funding to achieve those targets.
On average, across all our GSA sites globally we achieve 97% occupancy, making us one of the leaders within the PBSA sector and a trusted provider of private student accommodation. We have an already winning formula in terms of our business model and in what we set to achieve with what we provide, but we’re always looking at ways in which we can improve our offering and Student Wellbeing strategy.
It's an exciting time to be working in the PBSA sector. Ultimately, the gradual shifts we are beginning to foresee will spur on the overall long-term value of PBSA, while providing enhanced student living experiences for all those who live in the communities we provide.
*Christopher Holloway is Director of Business Development for Global Student Accommodation (GSA)