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Investing in Purpose-Built Student Accommodation
Team Torsney Global has gained significant experience in recent years advising clients in relation to purpose-built student accommodation (PBSA), and it is easy to see why. This burgeoning sector has a number of attractions for investors.
Tenancy rates are high and cash flow is relatively secure, whether due to initial government funding or to the “bank of mum and dad” when students find themselves short and the rent is due. In times of recession, student accommodation is relatively cushioned. Furthermore, anglophone countries, such as the UK, Australia and Ireland, benefit from an education industry centred around the English language, which has enduring international appeal.
Today, Purpose-Built Student Accommodation (PBSA) has transformed student property into one of the UK’s fastest-growing property sectors, with investment coming in from all over the world, generating high and consistent rental yields for investors globally.
The number of students in the UK is growing year-on-year whilst the residential housing market is becoming increasingly strained. As a result, more students are living in PBSA (purpose built student accommodation). This type of accommodation caters better for student needs, frees up housing for everyone else and also offers fantastic opportunities for investors.
Typical amenities include strong Wi-Fi, communal working spaces, building management and security, a gymnasium, event hubs and more. Because these properties are built for purpose, they tick all the boxes of what today’s students are looking for, encouraging retention for the duration of their study period, allowing investors to take a hassle-free approach.
Students tend to prefer living in purpose-built student accommodation over more traditional forms of shared housing because of the additional services and support that they can access with PBSA. But there is more to it than that. The truth is that private housing can often be based in poor locations and presented in a poor fashion.
Global Equity Funds are buying up much of what has been on offer given the high returns, like New York based private Equity firm, has struck the largest-ever private property deal in the UK by agreeing to acquire the UK student accommodation firm iQ in a £4.7bn deal.
The New York-based private equity firm is buying iQ from the US investment bank Goldman Sachs and the health research charity Wellcome Trust.
The property firm is one of the main players in the rapidly growing UK student housing market. It owns and operates 67 student premises across the country, with more than 28,000 beds and plans to add a further 4,000.
Many small private investors are also heavily buying in the PBSA market, that is where Team Torsney come in, having brokered several deals for private individuals in this sector. Contact Team Torsney with your PBSA enquiry
Pros of investing in PBSA
- High-demand offering – This type of accommodation is designed to meet the demands of today’s student rental market and therefore has the modern design, layout and amenities students are willing to pay a premium for.
- Confidence in the market – Despite the uncertainty of the student property market this academic cycle, 2020 was a record-breaking year for PBSA, with GBP 5.77 billion of investment in thePBSA sector in 2020.
- Better location – Because multistorey PBSA generally requires less ground space, the developments are usually built, in prime city-centre locations close to the university – increasing the chances of high yields and capital growth.
- Rental guarantee – With new properties, credible developers often offer a rental guarantee period, reducing the risk of your investment whilst the development establishes its reputation in the local market.
- Building management – Most PBSA has building management, maintenance and security, offering investors a hands-off, hassle-free experience.
- Option to invest off-plan – If you invest in off-plan student property, you can benefit from below-market rates and possibly capital appreciation over the build period.
- Stronger retention rate – PBSA generally has a higher retention rate than Student HMO, as students tend to have a more positive living experience. PBSA is designed to encourage a sense of community, making tenants more likely to stay for longer if they know other people in the building.
Cons of investing in PBSA
- Capital growth may not be as high as residential property – Although PBSA tends to generate higher rental yields than residential investments, capital growth may not be as high. However, this is expected as they are generally cheaper to buy than residential property.
- No mortgage option – It isn’t possible at this point in time to get a mortgage on PBSA, meaning investors pay the costs upfront.
Vita Student with a total of 26 developments in operation or in construction across the UK and Europe’s elite university cities, Vita Student has paid out over GBP 87.3 million in rental income to investors in just 8 years.
Vita Student maintained an occupancy rate of 89% throughout the pandemic, demonstrating the strong demand for high-quality PBSA and the resilience of the UK property market in times of wider uncertainty. Great news for our investors, Vita Student also saw a 7% year-on-year rent increase across the portfolio from 2018 to 2021, achieving 65% higher rental amounts than the UK average. Contact us for further information on all Vita Student PBSA properties.
Vita Student is a hassle-free, fully managed investment model that’s proven to generate strong returns for our investors globally.