How do you see occupational demand in the short to medium term and any factors on the horizon which may impact the market?

For several years Student housing could do no wrong in the eyes of investors and debt providers.  Last year was the first year where occupation was generally down across most markets, even markets deemed “super prime regional” such as Bristol and Edinburgh.   

If no one knows which investors are swimming with no bathers on until the tide goes out, last year very little was left to the imagination as numerous assets laboured to rental declines and reduced occupancy.

What was the takeaway?  Fundamentals matter. 

Good assets continued to perform very well.  Unite (who own c 10% of all PBSA in UK) as a proxy achieved rental growth of 8.2% for 2024.  Numerous other portfolios achieved similar performance.  Essentially, we returned to a normalised market where good assets and bad assets performed how those with knowledge expected.

Looking forwards the macro should maintain strong performance for good assets.  The Labour government is openly promoting international students to come to UK.  This is the opposite of the rhetoric and policy in key competing markets of the US, Australia, and Canada.  Perhaps already translating into UCAS application numbers who just confirmed a 9% growth in Chinese applications YOY.

With the tail winds of the macro the opportunity remains incredibly strong.  It is the micro where performance will be determined. With an annual sales cycle student beds are effectively consumables.  It’s a zero-sum game – the investors who know how to compete will take the returns that are undoubtedly available.

How are you finding the PBSA dynamics UK wide in the context of the current overall investment market?

The dynamics have been unusual since the cost of debt changes in 2022.  With many global investors seeking “beds and sheds” expectation of continued high levels of transactions was high.  Whilst Industrial pricing swiftly rebased the same didn’t happen
in Student.

As an indicator of how strong the PBSA opportunity is it wasn’t a lack of buyers that was the issue but a lack of sellers.  Like asking Noah to sell his Arc mid flood… why would they?  PBSA owners had assets that generally were fully occupied, delivering above inflation rental growth, valuations holding steady, amply covering interest payments, and with lenders who had more appetite for PBSA not less.  The market was defined largely by quality buyers but an inability to close the “bid ask spread”.  Numerous processes ended with bids on the table but not at attractive enough levels for the vendor to trade.

Undoubtedly the market was thinner – cash on cash buyers disappeared and the traditional funding market has been on fumes, with developers settling for a preferred equity model to salvage anything form acquiring sites at pre 2022 prices.

Transactions are notably returning.  Whilst down on the mid-term average UK PBSA saw transactions around £3.2bn in 2024 with the largest transaction being Mapletree’s acquisition of our old business for £1bn.

In the last 6 months we have seen a reduction in debt costs and Goldman Sachs, Greystar, and Hines among others complete deals – all on assets that have been available for the last two years.  Portfolios, good quality standing assets and refurbishments in the best cities are strong.   However secondary markets and assets sub 150 beds interest is incredibly thin.

Finally, it would be remiss not to mention fire safety remediation works.  Possibly the biggest reason for deals failing to complete where all else is agreed.  With 60% of UK PBSA stock being over 10 years old solutions are needed for liquidity.

What key factors do you look at when consider a PBSA location? / What do your students see as the key attributes when choosing one of your developments?

Charlie Munger had a great quote “People calculate too much and think too little”.  We see investors falling into this trap when believing what their spreadsheet tells them vs thinking about who the buyer is here.  Our experience is that PBSA is a sales and service business that is backed by real estate – you have to think customer first.

Investors will have to be even more thoughtful going forwards as the descent of office values has pushed PBSA to the top of the value chain for spreadsheets.  Any office with short income seems to now be promoted as “Prime PBSA opportunity” with no thought to whether students would want to live there above their other options.

With almost 3 million students in higher education the market is far more nuanced than the classic Real Estate view of just “students”.  Our focus when assessing success and risk factors is “who is the customer?”.  Then can we relatively accurate predict how that customer will operate, what value proposition will generate projected levels of income, and what options they will have through the hold period of the asset.

How high on the agenda is sustainability?

As the first registered B-Corp in the PBSA space sustainability is high on our agenda.

Looking at geopolitics my prediction, unfortunately, is that this will become far lower priority for investors over the coming years as policy is undeniably heading that direction in the US and growing rhetoric across political groups in Europe.

However, it should be high on PBSA investors agendas as it is critical to the two elements of income return.

Revenue: Sustainability is important for our real customer’s buying decision – the student.  In today’s 17 year olds time at school, they have seen BLM, Extinction Rebellion, and Greta Thunberg being named Time Person of the year.

Outgoings: Performance is based on Net Operating Income – so after Utilities.  Simply put – the less energy you use the less you buy.