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Real Estate Finance Insights

Real Estate Finance Insights


Skyrocketing inflation in energy prices, expected interest rate rises, plus supply chain difficulties, are hampering confidence levels for many investors. However, purpose-built student accommodation (PBSA) can still be a fruitful venture, so long as four core principles are followed, explains David Burke, Relationship Director at Secure Trust Bank.

There's no denying that uncertainty is rife when it comes to real estate development right now. The economy is in recession and there is an air of doom and gloom pervading the country. Particularly for certain sectors of the property market, caution is commonplace as developers and tenants alike tighten their purse strings.

One such issue has been on the cost-of-living crisis, and students' difficulties with it. The Guardian reported in November that nine out of ten students are worried about their finances, with some even skipping tutorials and lectures to save money. Other measures students are using to cut costs include spending more time at home to save money going to campus, or even suspending their studies altogether.

However, despite these recent woes, the demand for higher education remains strong. Data published in the UCAS 2021 End of Cycle highlighted a 5% growth in applications compared to 2020, with a 1% growth in acceptances. Looking further ahead, it is estimated that the UK will need a further 350,000 university placements to meet demand, according to a report by the Higher Education Policy Institute (HEPI).

So clearly, there is a market and upcoming generations do still want to further their education. Even with the country's burgeoning rhetoric on skills, T-Levels and apprenticeships and earning while you learn, the attraction of student lifestyle will still likely remain.

For developers, they can take confidence in this as so long as there is demand for further education, so too will there be a corresponding need for accommodation. However, at the same time, acquiring land, building new sites, and developing new student properties will need a shrewd business head, against the backdrop of the challenging market conditions.

Four key principles to a successful PBSA investment

At Secure Trust Bank, we like to think that there are four key principles to a successful investment in student accommodation. These are location, heritage, relationships, and trends.

   1. Location - Don't stray too far

As is the case with any residential property investment, location is a key factor to the success (or failure) of the property. This factor is arguably even more critical when it comes to PBSA.

Without doubt, the general consensus is that students move out to universities to experience living by themselves and with others. Crucially, students want to be close to campus, so they have easy access university facilities, student bars, clubs, and unions.

For those deciding on where they are going to live, any asset that is seen as a little too far of a commute to the university will already be at a disadvantage when it comes to attracting tenants, but if the cost-of-living crisis continues, location will be even more pertinent. As per the report above from The Guardian, we have seen already that many students are avoiding travelling to university to save money, and may even choose to live at home instead, rather than moving away.

For this reason, investors need to think wisely about where they choose to invest. At Secure Trust Bank, we have years of experience and data on a wide range of developments, occupancy levels, rents, and more in the PBSA space. This means we can offer personalised advice on whether a site is well suited to a new development or likely to return the required yields when it comes to investment.

   2. Heritage - Safety in Numbers

Another enduring factor of any successful PBSA is the university, and namely, its heritage and standing.

Whether you are new to PBSA or a seasoned investor, it always pays dividends to research the ranking tables. Look at the universities growing in popularity and invest in real estate that serves up-and-coming higher education establishments in the UK.

Universities that are a mainstay of the top 50, such as Cambridge, Oxford, and Imperial College of London, tend to be a safe option as these will always be oversubscribed - but development and investment opportunities may also be hard to come by.

It may be obvious, but keep an eye on the news too, particularly on student forums as this is where problems, and thus opportunities to solve these problems, can be spotted first. For instance, the University of Glasgow has had a growth of 40% to its student population in just five years (BBC News, November 2022), leading to the university saying it may not be able to guarantee student accommodation.

Working with lenders who can act fast in the market can allow you to capitalise on these conditions.

   3. Trends - Keep up or lose out

A third principle of a good PBSA investment is staying up to date with trends and what students want from their living quarters.

Student accommodation has come a long way from being box rooms in high-rise towers. In today's world, not only do students want a comfortable place to live that is close to campus, but it also needs to offer much more. Communal areas for students to congregate, such as gyms or green spaces, add to wellbeing and community. Meanwhile, making the asset trendy and 'Instagrammable', with apartments that are finished to high standards, adds to the appeal.

An additional point to consider is the likely cost of maintenance and continual upkeep of the development. Without this ongoing outlay, the asset can quickly become tired and dated, especially when faced with the rigours of student living.

   4. Relationship - Building a close one with your lender

Last but not least, it always helps to build a strong relationship with specialist lenders such as Secure Trust Bank.

Often, specialist lenders will be able to offer bespoke, tailored real estate finance as opposed to 'off-the-shelf' products that may not meet the needs of the borrower. At Secure Trust Bank, we can also finance unique deals, lending from £2m up to £45m.

As a relationships-driven bank, we like to think we're committed to supporting where other lenders may choose not to. As a result, we can help investors to navigate even the most complex of projects as there's often a good chance we've faced similar challenges before.

Student accommodation remains a strong choice

Even amidst the ups and downs that we have seen over these past few years, with a global pandemic, the war in Ukraine, and an unstable government, student accommodation remains a relatively attractive investment category.

Provided that developments are well thought-out and follow those principles above, and subject to the borrowing applicants' track records and credit worthiness, securing real estate finance should not be an issue. Contact us and find out how we can help with your planned student accommodation investment.