It won’t come as a surprise that the purpose-built student accommodation sector (PBSA) in the UK and Europe is not only well established, but gaining considerable investment. With demand for PBSA beds ‘in the UK alone totalling 1,489,110 students‘ (Cushman & Wakefield), it’s easy to see why investors want a piece of this thriving sector.
But with ESG now being an essential credential in any asset purchase or sale, and with 96.4% of those 1.48 million students needing housing for their academic year, is the UK in a race to offer enough beds at the right standard?
Current Stock.
Based on recent Cushman & Wakefield research on the PBSA sector, there is a clear supply shortage for student housing, based purely on current numbers, not even considering future growth:
‘Despite the demand, the net increase in beds for the 2023/24 academic year is just 8,760, highlighting a pressing need for more accommodation options.’
So, demand is strong, and we know that 80% of the 2050 building stock already exists, which begs the question. What options are available for the sector, and how can existing assets level up?
1. Retrofit.
In terms of speed of upgrade, price, and helping ease the risk of stranded assets; retrofitting existing assets is a great option. Ultimately, we know 80% of 2050 stock exists, and transactions will become harder and harder as we approach the 2050 net zero carbon goal, so upgrading student housing to adhere to ESG standards, and enhance the living conditions for residents is a must… and fast.
This not only solves the immediate problem of needing more bedrooms made available quickly, but it also means asset values can increase, NZC goals remain in sight, and better yet; the use of granular ESG data when smart technologies are retrofitted can enhance the understanding of how buildings are being used. Real-time data on the use of communal spaces can help Operators and Owners understand space planning and events, and data on temperatures of rooms and air quality can ensure resident health and wellbeing is always improved. This leads to higher rents, better retention, and a thriving new generation of professionals.
‘The aim should always be to get as close to a new-build’s net zero carbon performance as possible and retrofitting can provide this route by reducing the carbon burden of real estate assets, while also improving the building stock quality.’ (CPWP)
2. Transactions.
When it comes to real estate, it’s no secret that transactions and making investors happy is key too. So, in the context of PBSA, Savills investigated current stock and when it came to ensuring enough stock was available for demand, how asset owners are planning on dealing with rising ESG needs:
‘When asked how they plan to deal with current stock that doesn’t meet ESG standards, close to two-thirds (62%) of the respondents plan on refurbishing, while 23% plan on selling the stock. The aim to refurbish points towards the environmentally conscious investment sector who want to future-proof their assets and are in for the long run.
This is a laudable ambition and certainly points towards a greater consideration of embodied carbon and the positive ESG outcomes that can be had from refurbishment. However, it isn’t without its challenges.
But it could also point towards a recognition that investors won’t be able to maintain/grow scale if they were to rely upon buying only new stock and selling off non-ESG-compliant beds. Especially if new development slows in the near and medium term as finance is more constrained and the availability of land remains a challenge.’ (Savills)
It’s clear more needs to be done with existing stock to drive closer to NZC, and to meet student demand. But what about future stock, are there quick wins to meet market demand?
Future Stock.
With the onslaught of new smart technologies in recent years, there is a required standard now for all new build assets. With ESG having such a strong-hold, and the likes of SFDR Article 8 and 9 holding investment funds accountable for prioritising ESG regulations, the biggest challenge for future stock is pace of construction.
Cushman & Wakefield noted that the 2023/24 academic year ‘has seen record-high rental growth of 8.02%, with the private sector experiencing even more significant growth at 9.39%. Glasgow leads with over 19% private sector rental growth.’ So, with rental growth confirmed and active demand, suddenly the picture of a thriving sector becomes clear.
The question is, where are your PBSA assets in this equation? And are you capitalising on this demand?
For more information on how Utopi can help you retrofit your existing PBSA assets and generate an ROI in 12-36 months – get in touch today!
Author: Muir Baxter-Yiannou, Head of Global Sales and Strategic Deals.
Contact directly at muir.baxter-yiannou@utopi.co.uk.