A Guide to the Fundamentals

Investing in real estate offers a myriad of opportunities, and one intriguing niche within this market is Purpose-Built Student Accommodation (PBSA). This guide aims to shed light on PBSA investments, outlining what they are, the benefits and drawbacks, and key considerations for potential investors.

What is Purpose-Built Student Accommodation (PBSA)?

PBSA refers to housing specifically designed for university students. Unlike traditional university halls or shared student houses, PBSA units are modern apartments or cluster flats with ensuite facilities, often called ‘student pods.’ These accommodations come with communal amenities like lounges, gyms, and study rooms. Utilities and amenities are typically included in the rent, offering a hassle-free living experience for students. Located in university cities across the UK, such as London, Manchester, and Birmingham, PBSA has grown in popularity due to increasing student numbers and investment in the sector, with Knight Frank reporting almost £3.1 billion invested in the first three quarters of 2022 alone.

The Advantages of Investing in PBSA

Investing in PBSA comes with several appealing benefits:

• High Yields: Student properties often offer higher yields compared to other residential investments.
• Strong Demand: With student populations growing, the demand for quality student housing is on the rise.
• Attractive Rent Levels: PBSA can command higher rents than other accommodation types in the same area.
• Low Voids: Students typically rent for the entire academic year, reducing the chances of vacant periods.
• Modern and Well-Maintained: PBSA is appealing to both students and their parents for its modernity and maintenance.
• Hands-Off Investment: Professional management companies handle day-to-day operations, making it an easier investment for those who prefer a more passive approach.

The Disadvantages

However, there are potential downsides to consider:

• Dependent on Student Numbers: A decline in student populations could impact the market.
• Potential for Oversupply: Some areas may face a surplus of PBSA units, affecting rental demand.
• Costs: Service and management fees can reduce overall returns.
• Financing Challenges: Financing options for PBSA investments might be limited or more costly than traditional buy-to-let mortgages.
• Affordability for Students: The higher rent of PBSA may not be affordable for all students.

How to Invest in PBSA

Investment options range from buying shares in companies that operate PBSAs, investing in related investment trusts or REITs, developing new PBSA projects (typically for institutional investors), or purchasing individual rooms in PBSA developments, which may offer guaranteed rental yields for a set period.

Key Considerations Before Investing

• Demand and Supply: Assess the student population and the existing and planned PBSA in the area.
• Costs and Yields: Compare purchase costs and potential yields with other investment opportunities.
• Management and Running Costs: Understand the costs involved in managing and maintaining the property.
• Future Resale Potential: Consider the resale market, as PBSA units are a more niche investment.
• Market Trends: Keep an eye on how factors like demographics and international student flows might impact the market.

Conclusion

While PBSA offers a unique investment opportunity with several benefits, it’s not without its challenges. Prospective investors should conduct thorough research, consider market dynamics, and possibly consult with a financial advisor to determine if PBSA is the right fit for their investment portfolio. Whether you’re drawn to the high yields, the growing demand for student housing, or the modernity of these accommodations, understanding both the opportunities and risks is crucial for making informed investment decisions in the PBSA sector.