All grown up? Market maturity and investment in London's purpose-built student accommodation sector

Abstract

PurposeThe UK's purpose-built student accommodation (PBSA) sector has seen significant institutional investment in recent decades. This paper unpacks contemporary trends and perspectives on the sector. It questions whether PBSA has moved from being an “alternative” to “mainstream” residential asset class, framing the analysis through the lens of market maturity.Design/methodology/approachThe methods triangulate perspectives drawn from literature on the evolution of PBSA as an asset class with illustrations of investment trends across the UK between 2005 and 2020 using data from Real Capital Analytics (RCA), combined with findings from 40 semi-structured interviews with investors and stakeholders in PBSA in the UK London is the focus of the work, whilst other regional cities are integrated for comparison.FindingsThe results demonstrate that London's PBSA market is ahead of trends currently being replicated in regional cities. However, the regions currently offer greater return potential and opportunities for risk taking compared to London, where yields are compressed, and the market is considered lower risk. The concept of maturity remains useful as a framework for evaluating markets, however a more granular analysis of sectors is necessary to further understand asset classes within sectors. PBSA continues to trade at a premium across the UK; it is considered the most mature residential asset class.Practical implicationsThe emergence of PBSA as an asset class continues to play a developing role within the residential sector and UK investment market. Risk, value and local context remain key when integrating PBSA into institutional portfolios, and as the first to consider the UK market from a qualitative research approach, this research provides a snapshot of these influences in 2021.Originality/valueOur approach offers original insight into investment trends across the UK and is the first to focus reflections on the London market specifically. The research highlights the role of PBSA as a vanguard asset class for investors into residential, situating its growth within the framework of market maturity and drawing out market nuances from interviews.

Real Estate Insights Safe as houses? Thinking on the rise of investment into UK residential markets

“…Regeneration, development and private sector investment in the Dublin housing market were considered by Adair et al (1994), with Kosavinta et al (2017) considering decision-making processes in residential development. More recently, the journal has published numerous articles on residential real estate research, including a growing body of work on the PBSA sector (Newell and Marzuki, 2018;French et al, 2018;McCann et al, 2020;Livingstone and Sanderson, 2021), with Lin et al (2019) evaluating residential REITs in Japan, and Fyfe and Hutchinson (2021) exploring opportunities in the Scottish senior living sector. Although the research in residential real estate is growing in momentum, neither the pace of change in the UK market nor the channelling of institutional capital into this evolving and interesting asset class has been sufficiently considered in real estate research.…”

“…, 2018; McCann et al. , 2020; Livingstone and Sanderson, 2021), with Lin et al. (2019) evaluating residential REITs in Japan, and Fyfe and Hutchinson (2021) exploring opportunities in the Scottish senior living sector.…”

Macroeconomic risk factors and Chinese FDIs in real estate: evidence from the Asia-Pacific public real estate markets

“…It provides property intelligence for 172 countries in the Americas, Europe, Middle East & Africa and APAC; and tracks income-producing property transactions (including development sites), of US$2.5 million and greater, covering more than US$40 trillion of transactions linked to over 200,000 investors as of 2022. RCA is widely used by Chinese FDIs in real estate industry experts and in academic research (Geltner and Pollakowski, 2007;Fadeyi et al, 2020Fadeyi et al, , 2022Livingstone and Sanderson, 2021). Pavlov et al (2015) have investigated the drivers of the returns generated by international real estate securities and have documented the significant role of macroeconomic factors play in explaining these returns.…”

“…RCA is widely used by industry experts and in academic research (Geltner and Pollakowski, 2007; Fadeyi et al. , 2020, 2022; Livingstone and Sanderson, 2021).…”

The increasing importance of the alternate real estate sectors for institutional investors

“…While McCann et al (2019) considered financing strategies for university student accommodation in the UK, Sanderson and Ozogul (2022) considered investor strategies in Europe for university student accommodation, and Newell and Marzuki (2018b) considered the investment dynamics for UK university student accommodation. Livingstone and Sanderson (2022) also considered the market maturity and investment dimensions for UK student accommodation. Newell and Marzuki (2018b) showed the strong risk-adjusted performance and portfolio diversification benefits of UK university student accommodation, with university student accommodation being seen as an important component in the real estate portfolio for the optimal mixed-asset portfolio for institutional investors.…”