OPINION: Why purpose built student accommodation could be the BTR sector to thrive in 2025

My view is that this maybe even underestimates the potential of PBSA.

Firstly, as universities face funding squeezes and plug the gap by increasing student numbers and thereby fee income, more students who enrol will face a battle to find decent accommodation. Most UK universities house many – but not all – first year undergraduates in halls, but second and third years are increasingly left to fend for themselves in privately-owned shared houses, a sector which is notorious for decrepit properties.  ​ A recent survey predicted a 200,000-bed shortfall in 2025, particularly in some of the UK’s leading university towns and cities including London.  That means more students having to find accommodation – often from day one.

A rise in high-fee-paying international students who have money to spend on accommodation and exacting standards for rentals has also driven the rise in purpose-built luxury student accommodation. A decrease in international students coming to the UK may yet materialise, but even if it does there are still high numbers of students who want purpose-built private halls with on-side amenities that support their health and wellbeing.

As Knight Frank has highlighted, some 69% of students living in private PBSA rated the option to live in a property for more than one year as good or excellent. More than half of those applying to university for the first time noted that purpose-built accommodation had become more appealing because of recent increases in the cost of living.  That’s because the ‘bolt-on’ amenities that PBSA offers can include coffee bars, communal study areas with computers in case of personal laptop breakdowns, on-site gyms and cinema rooms and laundry services.  The price they pay includes these bolt-ons – many students would rather this arrangement than pay rent somewhere else and individual subscriptions for each of these on top of that. And if there’s a leaky shower or the fridge isn’t working, a maintenance team fix it immediately.

For many parents, too, PBSA is increasingly seen as preferrable to purchasing a flat for their offspring for the duration of a degree course.

The resulting high-end accommodation is being built by a rising number of private-equity-backed PBSA-dedicated brands, and many traditional developers are opening PBSA departments to enter the student accommodation field. Universities are welcoming this development, as its fast pace of growth is enabling them to deliver on ambitious ‘beds for all promises’.

Another positive is the potential for lower interest rates to further stimulate the sector. The majority of deals under offer are for stabilised or portfolio deals, including those that involve upgrading and repositioning existing stock as private providers sell off buildings for refurbishment.

There are also potential knock-on benefits for other BTR sectors: if students become accustomed to high-quality accommodation through PBSA, they may well elect to live in single person or shared BTR property in the future.

Most importantly, PBSA provides a guaranteed renter population that is able to fill all the properties in a building and, crucially, tenants who all wish to move in at the time. This means there is no need for strategies such as splitting an outline approval under section 106 into 30-40% affordable, 60-70% market housing, and pre-selling chunks at lower-than-market rates to help with cash flow. This can result in complicated combinations of 10 year and sale models, with some schemes flipping between BTR and back to market. None of this needs to be a consideration in PBSA BTR, which can be run with certainty as a pure ready-to-go BTR scheme.  At a time when investment is risky, all this makes PBSA very attractive to investment funds and I expect it to go from strength to strength in 2025.