Student housing crisis fuels profit bonanza for PBSA developers - for now
A-level results day should herald the start of a bright future, but for many UK students, it signals the onset of a different challenge: securing affordable accommodation.
An analysis of the purpose-built student accommodation (PBSA) sector by the Financial Times, reveals that a shortage of student housing is creating a perfect storm for investors, with demand soaring and rents skyrocketing.
The issue of affordability will become more acute and eventually mean that the sums will only work in select university locations.
The article points to the issues being endured by students in Bristol where some have had to be housed in different towns because of the shortage of campus accommodation.
Student accommodation crisis
The FT says that it appears that the country's student accommodation crisis will not ease soon, even though university applications this year are marginally lower than last year - but still 6% above pre-Covid levels, according to UCAS.
However, the student accommodation market in the UK has seen 100,000-150,000 beds being lost in shared houses as landlords sell up.
They've had to face more regulation and higher interest rates.
PBSA providers
PBSA providers are stepping into this growing supply gap for student accommodation.
Unite Group, a leading player in the sector, was forecasting a 7% rent rise for 2024-25.
The higher rents helped deliver a 14% increase in half-year earnings to £125.3mn.
Unite has also raised £450 million to expand its portfolio.
'Growing shortage of student homes'
In its results statement, Unite's chief executive, Joe Lister, said: "There is an acute and growing shortage of student homes, which is amplified by a shrinking private rental sector and depressed levels of new PBSA development."
However, the FT says, the financial situation for PBSA developers is complex.
While rental income is booming, construction costs have soared, exceeding £100,000 per en suite room.
To justify such expenses, weekly rents of approximately £230 are required - that's a price point feasible only in select cities like Bristol, Edinburgh, Glasgow and Manchester.
UK student accommodation report
Cushman & Wakefield's UK student accommodation report underscores the severity of the crisis.
It found demand for student housing outstrips supply by a significant margin, with rents surging 8.02% year-on-year.
The FT notes that while the current landscape is lucrative for developers like Unite and Empiric Student Property (ESP), affordability concerns will eventually curtail expansion.
As interest rates rise and economic conditions evolve, the viability of PBSA projects in some locations may become untenable.
That means only university towns and cities with students who can afford the higher rents will see the PBSA sector still delivering, the FT concludes.
'Affordability of PBSA'
Simon Thompson, the managing director of Accommodation for Students, said: "The affordability of PBSA will become a growing issue, restricting where developers want to build.
"We're seeing a two-tier market emerge, with students in prime locations facing exorbitant costs, while those in less sought-after areas struggle to find suitable accommodation."
He added: "As the student housing crisis deepens, the sector faces a critical crossroads.
"While PBSA investors reap substantial profits, the long-term implications for students and the wider housing market remain uncertain.
"Student landlords will need to continue providing quality student accommodation, but we need the government to appreciate what is happening and help the sector."
