The latest Bonard Student Housing Annual Report suggests that the global purpose-built student accommodation (PBSA) sector is cementing its institutional credentials, despite recent macroeconomic challenges affecting the wider real estate market. The report, profiling data, trends and trans-actions for the past 12 months, shows that occupancy rates and rents are still rising, as supply remains out of step with demand. The latest edition of the PBSA snapshot has expanded its criteria to track occupancy rates, rent levels, transactions, yields, construction pipelines and other key data points in the market across Europe, Australia, Canada and LATAM. The new metrics added to this year's edition include room size comparison to rent levels, rent series, and portfolio structure.
CHALLENGES AND OPPORTUNITIES
While soaring inflation, interest rates and rising costs in the last quarter of 2022 slowed down investment transactions, the overall outlook is positive and experts expect the sector to keep growing in the next two years. Growth will be driven by increased demand, especially from international students — and in some locations, supply will actually struggle to keep up with demand.
"Supply is not growing as fast as demand, that's probably the story for 2023-2024"
-Samuel Vetrak, BONARD
According to the report, occupancy rates hovered between 95 to 99% in Europe, while the average rent for a studio has reached €94.6 a month. Porto, Barcelona and Seville top the charts for the biggest construction pipeline, while Greater London and Greater Paris have the highest number of projects under construction. Bonard CEO Samuel Vetrak said: "The PBSA sector was affected in 2022 by the macroeconomic conditions, but less so than other asset dasses.
'In 2023, we can see even greater institutional capital demand for this asset class. Q4 2022 was a transition and adaptation quarter. Still, occupancy is high and rents are growing — in some countries 20% or 30% more than the year before. 'On the other hand, interest rates are expected to keep increasing slightly in 2023. And while development costs have stabilised, what has not changed is the cost of land. Some investors are waiting for a correction on that front.'
The report was presented by Martin Varga, real estate business development director at Bonard, during a webinar that welcomed over 1000 participants from around the world. The presentation was followed by a panel discussion featuring industry experts which was chaired by Vetrak. Josh Miller, managing director and head of transactions — Europe at Harrison Street, Rob Waterhouse, transaction director at GSA, Marc Sampietro, living operations director at aparto and Jochem van den Broek, head of banking at The Social Hub, all spoke about their experiences. Asked to indicate the occupancy rates they observed in autumn 2022 via an audience poll, 56% of the webinar participants reported occupancy rates between 96 and 100%, and 24% said they were between 91 and 95%. The panellists confirmed the trend suggested by the data. Miller said: 'From a transaction perspective...the second half of the year certainly had its challenges. I think across the institutional investor community, the bar has been raised in terms of the threshold that's needed to get deals done. I think that's likely to continue for some time. 'But from an occupancy and rent perspective... it's been one of our best years since we have been in business. The performance of this sector relative to most of the other real estate asset classes has been a bright spot.' Other panellists also agreed that occupancy rates are expected to remain high and keep rising, and pointed to China's decision to require students to study abroad rather than online from 2023 as 'good news for the sector'. The outlook also appears positive for transactions and yields. An audience poll revealed that participants expect exit yields to expand in 2023, with 42% of respondents saying they will expand by up to 50 bps. The panellists confirmed this view, adding that the picture will vary across individual countries. As for investment trends, Europe — and specifically Southern Europe — are high on the priority list for all. Vetrak commented: 'Supply is not growing as fast as demand, that's probably the story for 2023-24.'
"If you increase rents, you also increase expectations. That's why it's important to offer a package of service."
Marc Sampietro, APARTO
According to Bonard research, the project completion pipeline could potentially slow in atom. In the period between 2018 and 2021, an average of approximately 50,000 new beds per year were delivered globally (excluding the US). In 2022, delivery sped up to 75,000 and 77,000 beds are in the pipeline for 2023. However, so far data shows that only about 38,000 beds are expected to be delivered in 2024. Miller commented that rising building and financing costs, and planning difficulties in some markets, have made launching developments more challenging. 'The supply and demand imbalance is probably going to continue to be exacerbated over the next couple of academic years.' However, he said he expected that with inflation and financing costs hopefully plateauing, new opportunities could be unlocked at some point over the course of 2023.
FOCUSING ON QUALITY
One of the most successful features of the PBSA sector is its flexibility to adapt to unfavourable economic conditions. Rents have been rising sharply, by 3% in Europe on average (in the Czech Republic by as much as 37%) and 8% in Australia and Canada, which has helped to offset increasing utility costs. While rent hikes haven't dampened demand from students, the sector needs to focus on quality to meet enduser expectations, the panellists commented, ensuring that amenities and services match what students are looking for. Sampietro said: 'If you increase rents, you also increase expectations. That's why it's important to offer a package of service... students will ask for more. That's our key message when we are talking about rents: what other services are we going to include?' Van den Broek agreed: 'Especially for international students... if you go abroad, you want it to be the time of your life... So, rent increases, yes. But value for money is key.' Rents are expected to keep rising in 2023. An audience poll confirmed this prediction, with 53% of respondents saying they expect rents to increase by more than 4%.