Investing in PBSA (Purpose-Built Student Accommodation): A Guide
by Property Investments UKThe Property Investments UK editorial team have been researching and writing about the UK's property market for more than a decade.
Purpose-built student accommodation or PBSA is a unique kind of property investment. Here’s our guide to what you need to know if you are considering investing in PBSA.
What Exactly is PBSA?
PBSA is short for purpose-built student accommodation. As the name suggests it is residential accommodation that is specially built for occupation by students.
PBSA is a relatively new property asset class. Traditionally students going to university would live either in university-owned halls or student house shares. In recent years private developers and investors have entered this market by building and running student accommodation.
PBSA is usually provided in modern apartment blocks of cluster flats or study bedrooms with ensuite facilities. These are sometimes known as student pods. PBSA blocks often have communal amenities such as residents’ lounges, gyms, cinemas and media rooms. PBSA rooms usually include all amenities and utilities in the rent.
PBSA is only found in cities and towns which have universities. It tends to be focussed around the UK’s largest student towns and cities. Cities like London, Birmingham, Manchester, Nottingham, Liverpool, Leeds and Sheffield have seen extensive PBSA development.
Knight Frank says that there has been a record investment into the UK student market of late, despite economic uncertainty. They say that in the first three quarters of 2022, almost £3.1 billion was invested in UK PBSA.
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Here are some of the possible advantages of investing in PBSA:
- Strong yields. Student property investments typically offer higher yields than other kinds of buy-to-let investments.
- Strong demand. Student numbers have been rising fast in recent decades. So there has been a growing demand for student accommodation including PBSA in many places.
- Strong rent levels. PBSA rents are generally much higher than comparable types of accommodation in the same area.
- Low voids. Students rent their accommodation for the whole academic year, and possibly even for their whole university course. There are likely to be fewer unplanned void periods than in other types of buy-to-let.
- PBSA is usually modern, well designed and well-maintained. It is highly attractive to students (and to their parents).
- PBSA investment is a ‘hands off’ property investment so far as investors are concerned. PBSA accommodation is run by professional managers. Investors do not need to get involved with finding tenants or doing maintenance etc.
CBRE says that PBSA Index total returns and capital value growth in Q3 2022 were stronger than in the year to Q3 2021. Net initial yield for PBSA was 4.6% in Q3 2022
Here are some of the possible disadvantages of investing in PBSA:
- The prospects for PBSA investment are dependent on student numbers remaining strong or growing. Should student numbers fall in future this could affect the market.
A lower birth rate or young people deciding not to study at university could reduce student numbers in future. PBSA is often popular with overseas students. Factors such as Brexit and Covid have made it more difficult for students from abroad wishing to study in the UK.
- A large amount of PBSA accommodation has been built in some university towns and cities and even more are planned in some. Some locations may develop a surplus of student accommodation including PBSA, which will make it harder to let.
- Costs. Service and management fees are generally payable by the owner of the PBSA unit. These must be into account when calculating returns.
- Financing and refinancing options may be limited for PBSA investments. Standard buy-to-let mortgages may not be available and any available financing options may be more expensive.
- PBSA rents are usually higher than other types of student accommodation. They may be unaffordable to some students. Other types of student accommodation, such as student HMOs, often undercut them on price.
How to Invest in PBSA
There are several different ways in which you might make an investment in purpose-built student accommodation:
You could consider putting your money into an investment trust or REIT which has PBSA in its portfolio. This is also an indirect way of investing in PBSA.
Developing a New PBSA Development
Developing a new PBSA development is a multi-million-pound investment. It is an institutional-grade investment and not available to small and private investors.
Investing Directly In PBSA Rooms
Some PBSA developers offer small and private investors the ability to buy individual rooms within new PBSA developments.
These kinds of investments into PBSA sometimes come with a guaranteed rental income or yield for a number of years.
Important Things to Consider
Of course, there are a lot of things you must bear in mind before making any financial or investment decision and we always strongly recommend that you seek professional advice and do your own due diligence before making any commitment. Below, however, are a few important things you should consider, that are specific to purpose-built accommodation.
The Demand for Student Accommodation in the Area
As with any buy-to-let investment, you should consider what demand there is for your PBSA property. Look at student numbers in the area in which you are investing. Look at what the universities in the area are doing. Are student numbers rising, falling or staying static and what are they likely to do in future? This is especially important if you are buying off plan and your development may not be finished until some future point.
PBSA often particularly appeals to overseas students in the UK. So also consider current and future overseas student numbers.
Cushman & Wakefield say that 2.2 million full-time students are studying at UK universities with more students studying away from home, up 221,900 over five years.
Consider the Supply
Consider the supply side of the equation. Look at what other student accommodation exists in the area (of all types, not only PBSA but student HMOs etc.). Is there a shortage of student accommodation in the area, or a surplus, or are supply and demand balanced?
Also, look into future supply. Are any new, large PBSA blocks being built or planned for the area …. other than the one you are considering investing in?
Savills say that UK student housing is amidst a perfect storm. They say that with a record number of full-time students and a continuing shortage of PBSA, many students are turning to the private rented sector (PRS). But with the number of PRS properties shrinking and rents rising, there is a compelling need for more PBSA across the UK.
The Cost to Buy
If you are considering investing directly in a PBSA unit compare the purchase price with the wider property market in the area. What does the same amount of money buy you in the same area? Does the PBSA unit offer good value when compared with, for example, a non-PBSA apartment or house in the same area?
What Are the Yields Like?
As with any property investment, you should consider the gross yield on offer (annual rent divided by purchase price x 100) and ensure it offers you an acceptable return on your investment. Yields on PBSA tend to be attractive but also consider the other pros and cons of investing.
Management and Running Costs
PBSA blocks are usually run by a professional PBSA operating company and managed by a professional manager. They provide communal amenities and, often, a concierge service to student residents. The blocks will also require regular maintenance both to the fabric of the building and the interior.
Check what the management and running costs will be. It’s also sensible to check who will be managing the property and if they have a good track record of PBSA management, and ensuring good occupancy.
Future Resale Potential
As a property investor, it’s wise to consider the future resale potential of your investment. Always have an exit strategy in mind. As PBSA units can only be sold for student accommodation this means they can only be sold to other PBSA investors in future. The resale market for them is likely to be more limited than other types of property investment.
Will PBSA Increase in Value?
As PBSA is a relatively new property asset class it is difficult to forecast how values might change in the future. Bearing in mind that PBSA units can only be sold to other PBSA property investors this might impact their potential for price appreciation in future.
Should You Invest in Purpose-Built Student Accommodation?
In summary, investing in PBSA can offer a number of advantages that other types of investment do not offer. There are downsides too, however.
If you are interested in this kind of investment it is important to consider, firstly, if you really want to invest in student accommodation and, secondly, if PBSA is the most appropriate way to do so depending on your situation.