Big variations in city-level PBSA rental performance

Residential property markets across the UK are increasingly localised with an array of competing factors contributing to variations in both price and rental performance. The same trend is identifiable within the purpose-built student accommodation (PBSA) market, with performance contingent on the balance of supply and demand, sentiment and student numbers.

Understanding these variations is of vital importance for those already active or thinking of investing in the sector.

Generally speaking, cities with growing student populations and modest delivery pipelines, such as Birmingham, are outperforming the wider market. Cities with a high level of existing PBSA stock and stronger development pipelines, which include Coventry, are reporting more modest growth.

In a handful of markets, such as Sheffield, which have seen a notable volume of new beds released into the market in the last couple of years, rental growth has been flat or negative for some room types, though positive overall.

Markets where PBSA rents have fallen, such as Plymouth, are typically ones which have experienced static or falling student numbers.

The strength of the market is highlighted by the absorption of 150,000 new PBSA bed spaces over the last five years alongside steady rental growth. Taken together, this indicates ongoing strong demand for PBSA across the majority of cities. Indeed, the annual change in rental values across the sector has been positive in 89% of the cities covered by the index.

In the next two university years UK domiciled student numbers are likely to remain flat due to a demographic quirk which means the number of individuals turning 18 years old is set to dip. As a result, the key opportunity for PBSA operators lies in the degree to which they are able to appeal to the accommodation choices of second and third year students.

We explore this, and other key issues within the market in our Q&A with Nick Hayes, Group Property Director at Unite Students.