What has been the effect of COVID-19 on PBSA?

Purpose Built Student Accommodation (PBSA) is proving yet again, to be one of the more resilient asset classes in an economic downturn.

The continued pressure on income streams due to further lockdowns and international travel bans has been particularly challenging this year but the strong fundamentals of the sector will help many ride out the storm.

Surveys have shown that many students, both domestic and international, are keen to live close to their university despite continued virtual learning. Future Generation reported a surge in bookings when the road map to easing restrictions was lifted and are expecting to have over 90% occupancy for 2021/22. Unite reported a checked in occupancy of 80% for 2020/21 with 50% in physical occupation in February 2021, compared to Universities who reported that circa 35% of students had returned to their accommodation in January.

Applicant numbers for 2021/22 are at their highest level for more than 10 years with UCAS reporting an 8.5% increase on last year. However, as we have seen this year, applicants may not turn into physical attendance and accommodation bookings do not always lead to actual occupation. Therefore, it important that providers do not to get complacent and continue to be proactive in attracting students; domestic and international.

As students spend more time in their accommodation, they will have higher expectations and value for money will be key. High end schemes, once focused purely on international students, will need to re-evaluate and increase their appeal to the domestic market. The most successful operators will be those who continue to put student’s needs before their own, wellbeing and financial.

The increased competition in the sector will lead to a flight to quality for investors as well as students. Investors will focus on assets in strong university locations or those with a clear undersupply and will be more cautious around secondary and tertiary assets, unless there is asset management potential to create added value. These behaviours are highlighted by the sale of Red Queen, Coventry at the end of last year which had an occupancy rate of 90% and the forward fund agreements on sites in London and Manchester which are considered to be robust markets for PBSA.

We have seen a few portfolios transact this year, with this trend likely to continue as existing providers seek to rationalise their assets. Unite has announced plans to dispose of £200-300 million of assets in 2021 and began with the disposal of 2,281 beds to Aventicum Real Estate, a new entrant to the market.

Further opportunities to consolidate will likely also arise in the form of mergers or acquisitions of smaller PBSA providers and the potential to take some market share from HMOs which were not able to provide the same level of financial support and flexibility to students throughout the pandemic. Many students have found HMOs more isolating when not everyone returns to their accommodation. They are not able to provide the same community atmosphere and focus on wellbeing that PBSA providers are able to, which is likely to be an increasingly important factor as we come out of the pandemic and try to return to some form of normality!