A resurgence in demand has been seen with a “weight of capital” chasing the student sector, according to Chris Macfarlane, director of property firm Lismore Real Estate Advisors.
The purpose built student accommodation (PBSA) market is one of the fastest growing property sectors in the UK and is currently witnessing strong demand from international investors across Scotland, Lismore noted.
There continues to be a lack of supply in the strongest markets, which also include Dundee and St Andrews, along with a steady improvement in levels of demand from students making it a “compelling investment rationale”.
For the 2021/22 academic year, the number of students returning to university in Scotland defied most sceptics, the firm said, with average occupancy levels reaching over 90 per cent. Take-up for the 2022/23 academic year is also looking positive, with UK applications up 5 per cent and international students up by 4 per cent.
Lismore said the increase in international students was encouraging for the sector, as the majority are likely to stay in PSBA.
Macfarlane said: “On the back of strong investment fundamentals and a broader move into the residential space, the weight of capital chasing the sector continues to grow, with increasing interest from overseas capital, as well as from UK institutional investors returning to the market and becoming much more active in this ‘operational real estate’ space.
“They have become much more au fait with the workings of direct-let accommodation and have built up strong relationships with management specialists, with whom they outsource the day-to-day management and rent collection.”
Lismore noted that in Edinburgh just under a quarter of the capital’s 56,675 students are from overseas, with 31 per cent of the accommodation stock (17,569 rooms) being PBSA.
Key Edinburgh deals include Meadow Court, a 147-bed refurbished scheme, acquired by BP Investment Management for £16.1 million, reflecting a yield of 5.4 per cent, and Gilmore Place, a new £29.1m 217-bed development by S1 Developments, which is completing this summer, with funding by Abrdn at a funding yield of around 5.5 per cent.
With 64,531 full-time students, Glasgow has the greatest number of students in Scotland, with 16 per cent from overseas. PBSA accounts for 29 per cent of the student accommodation stock (18,919 rooms) in the city.
Meanwhile, St Andrews is viewed as one of the top UK locations for those looking to develop PBSA and there is currently a shortage in stock. PBSA accounts for almost 40 per cent of the accommodation stock (3,779 room) in developments.
Macfarlane added: “The imbalance between demand and supply of good quality PBSA rooms looks set to continue with pipeline in the key Scottish cities remaining tight. The increase in build costs is only likely to accentuate this issue.
“With this backdrop, the prospect for future rental growth and strong income collection looks positive and we forecast a bright future for the PBSA sector in Scotland.”