Purpose-built student accommodation (PBSA) differs from the student accommodation many of us remember. Today’s students are shunning the traditional house shares and out-of-date halls of residence as they’re perceived to be below par, with PBSA gaining in popularity from a more discerning student population. Purpose-built student accommodation is perfectly designed to meet the exacting standards of today’s students, ranging from studios to flats with a cluster of six or seven rooms sharing living quarters. Shared social spaces provide cable TV, laundry facilities and even organised social events, with many also offering gym facilities. Positioned in central locations and with all-inclusive rents PBSA has proven very popular with students, particularly international students, across the UK.
According to Cushman and Wakefield, demand for PBSA is high, with the average national student to bed ratio at 2.3 students per bed space available through PBSA, up from 2.14. However, supply is restricted, which adds up to a powerful investment case.
UK student accommodation has enjoyed tremendous growth over recent years, with international investment almost doubling over the last two years and institutional investors acquiring big interests attracted by compelling yields and strong capital growth. So why the growing interest in student accommodation as an asset class? And what types of returns can investors expect from student accommodation?
High income and attractive total returns: a compelling combination
Purpose-built student accommodation is a higher-yielding proposition, which is particularly attractive in the current environment of low interest rates. As the income for PBSA grows (which it has been steadily), so does the value of the building.
PBSA saw rental income growth of 2.7% in 2016 on average across all available accommodation. In the academic year ending August 2016 PBSA delivered a 10.2% total return, with a combination of 5.4% rental income and 4.8% capital growth according to CBRE. We are targeting a dividend yield of 6%+, after all costs and fees.