- UK PBSA (Purpose Built Student Accommodation) is a mature investment market valued at £53 billion
- Prices increased by 6.5% in the 12 months to September 2018, putting downward pressure on rental yields
- PBSA retains highly attractive investment fundamentals and continues to be a core element of the Property Partner investment strategy, building on our £32.6m portfolio, which yields an average cash dividend to our investors of 6.5%
Property Partner launched its first PBSA investment at Verney Street in Exeter in September 2017. Since then, we’ve acquired a further nine PBSA blocks on behalf of our investors, building a £32.6m portfolio diversified across nine university towns.
Today we can reflect on a market which has grown substantially since our entry two years ago. PBSA is now firmly on the radar of a greater number and variety of investors seeking property investments with strong income and defensive qualities. Investment in PBSA complements the changing nature of demographics and the way in which we live, work and shop in today’s society.
A mature investment market
UK PBSA is now a mature and mainstream property sector which, according to Knight Frank, has reached £53 billion in size, equivalent to 10% of the size of the professionally managed commercial property market.
The secret is out and professional investors of all sizes from around the world now see UK PBSA as an attractive investment. In the past 18 months, increasing numbers and types of buyers have been drawn by the strong income yield, long term stable rental growth and popularity of UK higher education at home and around the world, underpinned by continued undersupply of quality stock in many popular university locations.
You can read more about what makes PBSA such an attractive asset class and why you should add it to your property portfolio here.
In prime locations, for example London, Birmingham and Exeter, the future supply pipeline is under pressure as a lack of available land, the general shortage of housing and local planning constraints are restricting the construction of new PBSA schemes. Competition for any existing properties which come up for sale has increased, with potential buyers prepared to pay a premium to gain exposure to the market.
According to CBRE, the market leader in PBSA valuation, a reduction in stock coming to market last year was responsible for a fall in overall PBSA transaction levels to £3.2 billion in 2018, from £4.1 billion in 2017, in spite of consistently strong demand for the asset class from investors.
More buyers than sellers in any market will of course put upward pressure on prices and the CBRE PBSA index, based on the billions of pounds of stock that they value on behalf of investors, shows that prices increased by an average of 6.5% in the 12 months to the end of September 2018. This in turn puts downward pressure on rental yields.
Strong investor appetite for UK PBSA looks set to continue. In January this year, Jones Lang Lasalle surveyed professional and institutional investors with combined holdings in non-core property sectors of £61.5 billion (core being office, retail or industrial) to gauge their investment intentions for 2019. More respondents planned to increase their holdings in PBSA than in any other property sector, with those seeking greater exposure looking to expand their portfolios by 26% on average.
Property Partner PBSA investment
We continue to scour the market for attractive PBSA properties to list on our platform, but conditions in the first half of 2019 have meant that fewer opportunities meet the grade as less stock is available for sale and owners of choice blocks hold out for a premium price.
The factors at play in the wider market, including constrained supply and strong investor appetite, can equally be observed on the Property Partner Resale Market. The PBSA blocks we acquired in 2017 and 2018 are trading at premiums to their underlying valuations, mirroring broader market conditions where prices are being pushed up by yield-hungry investors.
We are highly selective and, as an experienced operator, apply realistic running cost assumptions to our net income estimates, which are usually lower than marketed by the sales agents. As such, we may be outbid by other investors who take a less conservative approach to forecasting running costs and/or pre-acquisition due diligence.
We continue to view PBSA as a highly attractive investment class and it remains a core element of our investment strategy. While prices have increased since we entered the market, the rental yields available still offer a premium over institutional-grade residential investments, with an attractive risk-reward profile, underpinned by a shortage in supply and the enduring appeal of securing a UK university education among potential students around the world.
New PBSA funding: Cornwall Street Studios
Our latest PBSA investment, Cornwall Street Studios, is located in Birmingham, a fundamentally undersupplied market.
Invest now and access a projected dividend yield of 5.05%.
Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however, the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested. Past performance is not a reliable indicator of future performance. Forecasts, if stated, are not a reliable indicator of future performance. Interest and capital returned may be lower than expected. Gross rent, dividends, and capital growth may be lower than estimated. 5 yearly exit protection, exit on platform, exit in line with a specific investment case or fund strategy, subject to price and demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Financial promotion by London House Exchange Limited (No. 8820870); authorised and regulated by the Financial Conduct Authority (No. 613499). See Key Risks for further information.