Guide to Investing in PBSA (Purpose-Built Student Accommodation)

There are over 120 universities in the UK that welcome almost 3 million students every year, including international students who travel here to study. This represents a huge influx of people looking for accommodation, ideally close to their university or college. Many investors have seized this opportunity and turned to purpose-built student accommodation, or PBSA, as a lucrative investment opportunity. But is it still worth investing in? What is the best way to invest in PBSA? What are the benefits and drawbacks of this investment strategy? Read on to find out more.

Table of Contents

What is Purpose-Built Student Accommodation?
Is Purpose-Built Student Accommodation a Good Investment?
Where to Invest in PBSAs
PBSA – to Buy or Build?
Pros and Cons of Investing in Purpose-Built Student Accommodation

What is Purpose-Built Student Accommodation?

Purpose-built student accommodation is, as the name suggests, residential properties built for the specific purpose of housing university students. Some students live in university-owned halls of residence or student house shares, but most universities cannot house all of their students, and many towns and cities cannot house them in the properties that already exist there. That’s where purpose-built student accommodation comes in. PBSAs usually come in the form of apartment blocks with private bedrooms and bathrooms and some shared facilities like communal kitchens and study areas. Some PSBA apartments are similar to serviced accommodation in that they come with amenities such as laundry rooms, gyms, resident’s lounges and even pools and cinemas in more high-end locations. Students pay a flat rate per month that covers the rent and all bills, making it appealing for young people moving away from home for the first time. PBSAs are common in larger cities with several universities, such as London, Birmingham, Leeds and Manchester, and smaller cities that have a large student population, such as Oxford, Lincoln or Lancaster.

Is Purpose-Built Student Accommodation a Good Investment?

The student accommodation market in the UK is valued at £53 billion a year and commonly outperforms all commercial property, reporting returns of 9.8% in the last year (Source: CBRE). Thanks to the stability of the UK’s high education sector, this bubble shows no signs of popping and is considered by many investors to be very resilient, even during the pandemic and following Brexit. Rental yields on student accommodation are high compared to regular residential accommodation, especially given the tendency to offer individual rooms in a shared property rather than rent out an apartment or house as a whole. For these reasons, PBSA is considered a valuable investment strategy, especially for those with a large amount of capital to invest and the patience to wait for long-term returns.

Where to Invest in PBSAs

Not every location is suitable for purpose-built student accommodation. First of all, it obviously has to be in a city that has at least one university. Secondly, it should be close enough to the university campus (or campuses) that people can travel there on foot – most students do not drive so their accommodation should be walkable from the city centre and from their university. Large accommodation blocks and apartment buildings take up a lot of space, so it may be difficult to find a suitable location that fulfils the above condition of proximity to campus. Therefore, finding a good location can take some time. Consider researching the main university cities in the UK, especially those that have plans to expand their campus or offer more courses in the near future. The 10 biggest cities are an obvious choice for investing in PBSAs, but don’t discount smaller cities such as Durham, Brighton or Bournemouth, which may not be that big but do have a large student population.

PBSA – to Buy or Build?

PBSAs offer two options: to build a purpose-made block of apartments or buy and convert an existing building or block of flats. Building a brand-new property can be ideal as it offers the chance to tailor the layout and features to meet your specifications and student preferences, and some new builds may qualify for tax incentives or grants. Newer builds can also command higher potential returns. It will, however, take longer to generate income. Obtaining planning permission can be tricky, too.

Converting a building into student accommodation can offer faster income generation, and banks may be more willing to provide a loan for refurbishing an already built property. There could be limited customisation options, and some older buildings may need some investment in modernisation to improve efficiency, achieve compliance or avoid problems further down the line.

Buying an already existing PBSA is another option, too, although this may come at a premium. If you are an investor who is seeking immediate cash flow with reduced risk, buying an already existing PBSA could be a safer choice, but for those with greater tolerance for risk and ambitions for long-term growth, developing a new PBSA can offer larger returns.

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Pros and Cons of Investing in Purpose-Built Student Accommodation

There are several benefits and drawbacks to investing in PBSAs, including:

Pros of Investing in PBSAs

Typical rental yields are higher when compared with buy-to-let properties – higher rents can be charged per apartment or room
High demand, especially in popular student cities
Few void periods – many students will stay in the same accommodation for the whole academic year and may extend their stay for their entire course, especially if a discount is offered for the summer when some students move back home
Market resilience – PBSAs are created in alignment with their target market, and unless the university closes down (not too likely) then there will always be demand for student housing

Cons of Investing in PBSAs

Some cities have experienced market saturation, where many developers have jumped onto the PSBA trend, and now there aren’t enough students to fill the accommodation – this is why market research is essential
PBSAs require a large upfront investment, which may not be accessible to some investors
A highly competitive market combined with the market saturation described above can result in a limited tenant pool, especially for more luxury student accommodation
Your exit strategy is limited as there is a small pool of potential buyers for PBSAs – most buildings of this type won’t be suitable for families or regular residential tenants, so the resale market is limited to other PBSA investors.

Investors who are interested in PBSAs should take the time for thorough market research and always prioritise the location as a primary decision-making factor, not only in regards to proximity to the university but also how easy it is to travel around the city, especially on foot. Careful financial planning is also essential as funds for development will be needed upfront, as well as a contingency budget for potential unforeseen expenses or delays.

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