Investing in Belfast’s Future: A Real Estate Research Report

PBSA – a market with demand

After stalling throughout lockdown, investment into the Purpose-Built Student Accommodation (PBSA) sector in the UK is once again active. There is a high volume of activity with an estimated £750million to £1billion of investment currently in the pipeline.

Despite the pandemic, UCAS data indicates a 2 per cent rise in applications to study in the UK compared to 2019, with applications from international (non-EU) students up 10 per cent year-on-year.

There are over 50,000 students in Belfast, 30,000 of which are studying full time. With just over 6,000 bed spaces available in the city, many of which have only complete these past few years, it is clear this critical shortage of supply will surely further entice developers to build and invest in what has the
potential to be a very lucrative sector.

Indeed, other regional cities ahead of Belfast in the development cycle have witnessed post-graduate students relocating from PBSA into complimentary co-living and build to rent (BTR) markets bolstering the economy.

PBSA market

With a total of 30,240 full-time students studying and living within the city, demand for PBSA accommodation continues to increase and at a pace far greater than the current supply can offer.

CBRE anticipates a strong year ahead for the PBSA sector for these reasons:

• Population number of over 18s in Belfast is rising at one of the fastest rates in Europe. Population growth forecasts over the next 25 years at 5.7 per cent.
• UK and global economies could see a decline after the COVID-19 pandemic. There is an assumption that an increased number of people go to university in a recession, as evidenced during the global financial crisis in 2008-2010, where there was a 30 per cent increase in university applications.
• There may be some students who were put off attending university in 2020-2021 and these will likely defer to 2021-2022.
• There are only 6,400 PBSA bed spaces in Belfast. Compared to the UJ average of 21.04 per cent, 8.93 per cent of students studying in Belfast live in PBSA. The demand is far outweighing supply at present.
• Development pipeline - on the supply side, over 2,359 PBSA beds are currently in the planning pipeline.
• Existing operators include Student Roost, Queen’s University Belfast and LIV Student.
• Institutional investors represented in the sector include Brookefield, CBRE Global Investors, UBS and Knight Frank Investment Management. Recent developer-led schemes and announcements have included Elkstone Partners (156 units at Bradbury Place) and a joint venture between CA Ventures and Harrison Street (251 beds at Botanic Link).

 

PBSA market recent developments

The growth in the PBSA sector has been evident across the entire UK. It is estimated that there is over £750m worth of investment currently in the PBSA pipeline.

Belfast’s renowned reputation as a place of learning and higher education means it attracts students from far and near. With the city having higher historic rates of students living in other rented accommodation as opposed to PBSA, there has been a real focus on providing better PBSA to meet the requirements of the students who come to Belfast in their thousands.

PBSA recent developments in Belfast

Wellington Place
Rooms: 340

The Elms, BT1 and BT2
Rooms: 1,223

Botanic Studios
Rooms: 156

John Bell House
Rooms: 413

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PBSA market key country metrics

Metric	UK	Belfast	Ireland (Cork, Dublin, Galway and Limerick)
Student numbers	1.93m full-time students (2019-2020) 26 per cent international students estimated demand pool: 1.21m	30k full-time students (2019-2020) 11.93 per cent international students estimated demand pool: 14.76k	190k full-time students (2019-2020) 14 per cent international students estimated demand pool: 85k
Beds and higher education institutions	690k operational PBSA beds over 167 higher education institutions 90 globally-ranked universities	6.4k operational PBSA beds four higher education institutions two globally-ranked universities	21k operational PBSA beds 23 higher education institutions five globally-ranked universities

 

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PBSA market UK performance

Investment

Investment into PBSA was strong at the start of 2020, but stalled throughout lockdown. However, this has picked-up since restrictions were eased and a total of eight deals, equating to £280m of investment, have now been agreed since March. There is also an estimated £750 million to £1billion worth of investment in the pipeline that is likely to transact before the end of September.

Demand

UCAS applicant data as at June 2020 showed that total applications in 2020 were 2 per cent higher than 2019. Domestic applications were up 2 per cent, although applications from EU students fell by the same level. Applications from international (non-EU) students were up 10 per cent  year-on- year, with applications from China, India and Hong Kong up 24 per cent, 23 per cent and 14 per cent respectively. On A-level results day, a total of 415,600 people had a confirmed undergraduate place, up 2 per cent from 2019. The current deferral rate of 5 per cent was level to the previous year.

Supply

There remains an acute supply and demand imbalance across most markets, further impacted by construction delays as a result of COVID-19. The focus is on sites that are close to practical completion to ensure they are ready for the start of the academic year, but the funding environment for new development remains challenging. Rents At a portfolio level, most large operators were reporting gross rental growth of approximately 3 per cent year-on-year in August 2020. Rental guarantees on new investment deals is underpinning and stabilising pricing. As a result benchmark yields are broadly level with March 2020. Assets have typically seen a 3 to 5 per cent reduction in capital value where no guarantee is provided.

Outlook

Demand remains resilient, as illustrated by UCAS applicant data, particularly from international students. Investment into the sector is picking up and likely to rebound strongly with a number of new entrants anticipated. Although occupancy levels suffered this year, bookings for the 2020-2021 academic year were broadly in line with 2019-2020. The PBSA sector has demonstrated its resilience throughout this period of uncertainty. It will continue to be supported by strong underlying fundamentals and we expect to see increased levels of investment and out-performance relative to other real estate sectors.

Stable yields

Across most markets, yields are remaining broadly stable. Benchmark yields for London, Super Prime and Prime Regions have stayed the same as they were prior to March 2020. However, there has been some softening in secondary locations. This cannot be solely attributed to the impact of COVID-19, although this has perhaps exacerbated the trend. This polarisation has been a theme of the market for some time and is predominantly fuelled by changes in student application trends and speculation over the financial health of some universities. We expect yields to remain broadly stable in the short term.