What’s Driving Growth in PBSA Market?

For property investors and developers, the favourable nature of the current purpose-built student accommodation (PBSA) market is not something new. Most investors have already jumped on the bandwagon and even taken it out for a few rides around the block.

In fact, according to Savills 2017 – 2018 World Student Housing Report, global cross-border investment into student housing stood at 37% of all investment, a higher sector proportion than for offices (34%) and retail (29%). In 2016 global investment into student housing reached a whopping $16.4bn!

So everyone knows how profitable the PBSA market is, but what actually makes it tick? What factors are driving the industry now and will they continue to do so? To help you gain a greater perspective we’ve identified the key growth factors for the PBSA market.

1. Spike in global investment

Global investment into the student accommodation market has predominantly been led by a handful of investment firms. However, due to the lucrative nature of the industry, it’s recently attracted investment from Asian financiers such as Singapore real estate fund Mapletree with its £417m tender to purchase the Ardent Portfolio in the UK. The standout and single largest investor in 2016/17 was Singapore’s GIC who is active in two of the major global deals. They now have interests in the US, UK, Germany and Australia.

International investors have almost doubled market share in the past two years, up to 64% in 2016 from 35% in 2015 claimed commercial and residential real estate service provider Savills. Jacqui Daly, Director of Savills investment research and strategy said:

“Singaporean sovereign wealth fund GIC is one of the most experienced investors in the UK student housing sector. Their continued investment in 2016 is a massive vote of confidence in the sector.”

Dubai-based student accommodation provider Global Student Accommodation (GSA) also got in on the action and teamed up with Singapore’s sovereign wealth fund GIC to purchase the £700m portfolio of Oaktree UK Student Accommodation. Canada-based real estate firms Brookfield Asset Management and CPPIB also contributed to the global student housing investment deals by investing £417m each.

It seems global investors are just getting started and we can expect Chinese investors to get in on the action as well. Property investors should also keep an eye on emerging PBSA markets such as Australia, Germany and France to diversify their portfolios.

2. Shortage of purpose-built student accommodation

Any country that is attracting international students is facing the same dilemma; a lack of student housing. Global educational hubs like Boston, London and Sydney have been facing the same issue and even with global investment in PBSA on the rise it still doesn’t come close to meeting the demand. The influx of students studying abroad outstrips any such PBSA supply in the current market. A study by Savills states that “the provision of student housing is low, ranging 6% to 24% in the major national markets.”

As troublesome as this is for the students, it proposes an idyllic opportunity for property investors and developers. The new generation of students is no longer content with four walls and a bed or outdated residence halls. They want to live in spaces that are catered towards the educational experience. They want communal spaces where they can study, socialize and have unlimited access to high-speed internet and they’re willing to pay for it.

Even with the supply of beds increasing every year it still won’t meet the global demand. A study by Knight Frank concluded that across the UK as a whole, full-time student numbers outweigh current PBSA bed spaces by 3:1. A similar situation applies in almost any country hosting students, so the opportunity is quite prevalent.

3. Growing Asian economies

Unless you’ve been living under a rock the last few years you’d have seen and experienced the impact of growing Asian economies such as China, India, South Korea and Japan. Their influence is widespread from industries like manufacturing to IT. This economic boom has elevated many families who before could not even entertain the thought of sending their children overseas to study. However, with this new injection of wealth, parents are now able to send their children to get educated out of their home country.

The growing Asian economies of China and India, along with South Korea have been major contributors to the growth of international student mobility. Over 50% of all international students originate from an Asian country. In fact, these international student mobility trends are reshaping the student accommodation market.

According to SEVIS by the Numbers, the biannual report on international student data, 1.18 million international students with academic or vocational status are studying in the United States. Out of these, a massive 77% are from Asian countries with China and India sending the most students. Other emerging PBSA investment markets like Germany, France, Italy and Spain are also experiencing a similar trend of an inflow of Asian students.

An interesting point to note here is that some Asian countries like China and India are making efforts to position themselves as higher education destinations. In fact, China hosts over 500,000 international students, ranking behind only the US and the UK as an international student destination. This is just one of the trends transforming the international higher education market.

4. Universities & countries stepping up their game

It’s no secret that education is a big business. There has been quite some speculation as to how much the global market is actually worth, with online education provider 2U claiming it’s worth a massive $1.9 trillion!

Regardless of exactly how much the market is worth, one thing is certain, it’s a lot! For this profitable reason, universities have really stepped up their game to attract more students. Universities can no longer rely on their name or pedigree to draw in students, they have to adjust to technology and global demands. At the same time, several countries in the EU are offering courses in English and devising policies that attract foreign students.

PBSA owners and developers would do well to keep an eye on universities and countries that are being proactive in ‘upping their game’ for recruiting new students. Universities that are investing in new tech and infrastructure are key indicators. Many universities are now offering specialised degrees which are more relevant to the evolving industries. They are even investing in methods such as “sticky campus” and revamping campus bookstores to create a better student experience. Both student accommodation providers and universities can maximise income by understanding what the student wants.

Social media has been a game changer for many industries and the education industry is also utilising it. Universities are now harnessing social media to engage with prospects and build an online image of themselves. Property investors can get an idea if it’s worth developing in a certain area based on how universities in that area are marketing themselves on platforms like Instagram and Facebook.

Need help?

QX works with many of the top student accommodation companies, delivering accounting services for properties spread across 180 sites, covering 50,000 beds. Our teams work with a wide range of software and our F&A services have helped student housing owners reduce the operating costs for accounting functions by up to 50%. We can help your company to achieve comparable results.

Don’t hesitate to get in touch with us if you need any advice or want to explore our services.

Originally published Feb 08, 2018 12:02:35, updated Jul 23 2024

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