What lies ahead of the PBSA market in a post-pandemic world?

It’s been a tumultuous year for the student accommodation market, with distance learning and travel restrictions taking their toll on occupancy levels nationwide. However, it would be a mistake to perceive such a varied sector as homogenous given the major differences we’ve been able to observe in the performance of Purpose Built Student Accommodation (PBSA) and houses in multiple occupation (HMOs).

Taking a closer look at PBSA

The past year was particularly challenging for the PBSA sector, which was severely impacted by the pandemic because of its reliance on international students, who were unable to return to the UK due to the travel restrictions that were enforced during the lockdowns. 

In particular, the prospects of PBSA are inherently linked to growth in Chinese students, with this demographic equating to 31% of non-EU acceptances in 2020. This overreliance was highlighted when the number of visas issued to Chinese nationals dropped by 58.7% in the 12-month period up to September 2020, leaving PBSA providers struggling to fill beds. Whilst this figure has since recovered, the emergence of Omicron again raises questions over the appetite international students will have to come to the UK.

In the longer term, as the Chinese youth population declines and the quality and quantity of Chinese educational institutions increases, the UK PBSA sector must become less dependent on this demographic.

In the meantime, acceptances from EU applicants have declined by over half (50.4%), which represents 16,295 fewer students. If these trends are to continue, the UK student accommodation sector will need to urgently reposition itself to start attracting more domestic students. However, with the cost of PBSA being considerably higher than the average maintenance loan provided to students in England, there is a clear need for more affordable options, more aligned with the sums UK students are able to pay. 

There is little question that the pandemic has had a negative effect on PBSA, however, we’ve witnessed significant performance variations depending on location. Bristol and Nottingham, for example, have remained buoyant given the strong domestic demand growth. Cities, such as Coventry and London, on the other hand, have struggled given their high exposure to international students and an abundance of studio rooms.

Reflecting upon the HMO market

The HMO market has been mostly insulated from the pandemic over the last couple of years due to the early lettings cycle and strong domestic demand, experiencing a 10.4% rise in year-on-year enquiries.

Fortunately for the student accommodation providers, there is still strong demand from domestic students to move away from home. This, combined with domestic demand growth, especially at Russell Group universities and other prestigious institutions, means demand for HMOs has been extremely robust. The past year saw 35% more yearly acceptances at higher tariff providers compared to 2013. Lower tariff providers, on the other hand, saw a 12.6% reduction in acceptances this year over the same period, highlighting the divergence between locations.

Given the growing number of applicants enrolling into top-rated UK universities, accommodation providers catering to those attending top-tier institutions are unlikely to see any dips in demand in the foreseeable future, ensuring certain locations remain highly attractive from an investment perspective.

Key learnings for PBSA

Whilst our lives are adjusting to the new ‘normal’, the possibility of future restrictions remains. Therefore, the PBSA sector needs to better understand the wider market, including HMOs, if it is to step away from its dependence on foreign students to fill its beds. The first step here must be rethinking the cost of PBSA to make it financially viable for domestic students.

Furthermore, investors across the board must remember that cities and towns where some of the UK’s most sought-after universities are located are more likely to outperform areas that don’t have such an advantage. Furthermore, savvy investors need to remember the importance of examining every potential location on an individual basis, taking into account the size of the addressable market for the product being considered, the pipeline of planning applications and other factors to ensure an appropriate product fit, rather than simply relying on general trends.

*Richard Ward is the Head of Research at StuRents