Octopus Property

The opportunities of the PBSA sector

Over the years, the purpose-built student accommodation (PBSA) sector has increased in popularity with a total return of 11.8% per annum between 2012 and 2016.

Savills expects investment volumes to have reached £5.3bn by the end of 2017 – a 17% increase on 2016 – as investor confidence returns after the EU referendum.

The increasingly attractive asset class has benefited from the overall growth in student numbers, which has left universities struggling to provide enough rooms in halls, paving the way for institutional investors and private investors to step in and help deliver the desperately needed stock.

However, across the UK as a whole, full-time student numbers continue to outweigh current PBSA bed spaces by 3:1, despite the pipeline of student accommodation either planned or underway. Cushman & Wakefield reported that there were 1.7 million full-time students in the higher education system at the start of the 2017/18 academic year, the highest number ever recorded.

Opportunities to take advantage of the sector’s strong countercyclical characteristics continue with the current pipeline unlikely to address the supply/demand imbalance prevalent in a number of major university cities.

Birmingham and Bath are just two that have been earmarked as student property investment hotspots for 2018 due to the rising demand for high-quality accommodation as the reputations of the universities continue to increase.

As the asset class continues on its positive trajectory towards maturity, developers are faced with an increasingly diverse choice of lending options, from specialist lenders to high street banks to debt funds to private equity providers.

Since 2014, Octopus has provided around £100m of PBSA acquisition and development finance, spanning the length and breadth of the UK, from Brighton to Leicester, Worcester to Leeds, to Birmingham, Coventry, Cambridge and, of course, London.

While we are happy to talk to any developer, our PBSA appetite is primarily for sites delivering up to 400 beds in strong university cities with favourable supply/demand dynamics, providing facilities that range from £2m-£35m.

With a nine-strong development team drawn from the financial services sector and a combined 50 years of real estate experience, Octopus continues to partner with some of the most dynamic and successful developers currently operating in the market.

Through our unique lifecycle lending model, we have a 360-degree proposition which provides borrowers with a complete range of financing options. We can offer commercial acquisition bridging facilities, which can be flipped into development on grant of planning, and then into a longer-term investment facility without double charging arrangement fees. We truly lend through the whole lifecycle of any student accommodation scheme.

We have identified a strong pipeline of student deals targeted for completion in H1 and with the sector’s defensive stable characteristics, attractive yield, the low interest rate environment and foreign exchange tailwinds, it makes student accommodation a preferred sector for us to lend in.

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