How to maximise your PBSA assets: part 2 - term time occupancy
May 22, 2020
Student accommodation providers are right to be concerned about how social distancing measures and remote learning will shape student needs over the next academic year, and the projected rise in deferrals. As the Bank of England announces an expected UK GDP shrinkage of 14% for this year and many universities offering more online courses for the next academic year, how can PBSA operators acclimatise to a “new normal” during term time? In this blog series we will take a closer look at the issues and opportunities facing PBSA:
- Maximising the summer period
- Filling available units during term time
- New PBSA assets in construction
- Increasing the long-term trading value of PBSA assets
Covered in this installment: We examine how to optimise term time occupancy and bolster your assets for a wave of uncertainty come September 2020.
Ahead of the new academic year, there is considerable uncertainty as to how the COVID-19 pandemic will impact the number of students either starting at, or returning to, UK universities. The heightened warnings of a deep UK recession, uncertainty of university return dates, the shifting of class formats to online and global travel restrictions could mean substantially less students arriving for the 2020 autumn intake, most notably for international students.
A recent survey from London Economics found more than 25% of (largely domestic) first-year applicants said they were willing to delay starting their courses if universities were not operating as normal in September. If this projection came to fruition, that is roughly 120,000 fewer students. Pair those findings with the British Council’s survey that 22% of first-year Chinese students would no longer be attending UK universities, another 39% still undecided and it paints an unsettling picture for student accommodation providers in the near future.
The case for flexibility
It’s clear that student accommodation providers need to have a contingency plan in place that mitigates the downside risk of catastrophically low occupancy. The most straightforward option is to apply for a change in “use class.” The main benefits to PBSA owners in changing classification:
- It works as an insurance policy against high voids and low income when the academic year begins.
- It allows the provider to control their own destiny, rather than applying a ‘wait-and-see’ approach to an unknown recovery period.
There has been an increase in councils taking a sympathetic stance to the conundrum-facing PBSA landlords. Additionally, some councils are recognising that by encouraging alternative accommodation uses (such as essential workers or domestic tourism) they can play an active role in helping their local economy bounce back.
Why the shift in council thinking now?
In the current climate, now is an ideal time for councils to experiment with easing the restrictions on PBSA assets to allow them to tap into alternative forms of rentals more flexibly, granting them access to a broader set of tools to help them manage the economic impact of COVID-19 upon their business whilst bolstering the local economy. Councils are now taking note because:
- Vacancies benefit no one. High vacancy rates reduce NOI for the landlord and create “ghost” communities. Additionally, “ghost” communities send a bad signal to potential investors, meaning less development and ultimately lower funding via council taxes.
- Professionally managed short-term rental operations within student assets are technology-enabled and managed to hotel-standard, making them extremely safe for both the guests and the building residents. They can easily be run on segregated floors to ensure there is minimal overlap.
- There is a growing need for accommodation to house essential workers - PBSA developments can easily meet that urgent demand at scale as the UK “returns to work”.
Where the above points may have been dismissed as exaggeration in the past, there is further proof that this equates to value. Lavanda recently assisted a 700-bed student block in Liverpool to release two full floors to short-term rental accommodation, resulting in a substantial revenue increase for the asset. Other providers have now indicated they wish to follow suit, having better understood the level of complexity that Lavanda helps to navigate.
As the world grows accustomed to the “new normal,” we will likely see more collaboration between industries and governments - the forging of effective partnerships that truly benefit both sides of the equation. In the UK, we are seeing the emergence of such partnerships. If you are a PBSA owner or University wanting to find out more about how we can help analyse the opportunity in your accommodation portfolio, navigate the legal & planning issues and help set up a successful short-term rental operation, we are happy to share our knowledge with you. If you missed it, be sure to read our previous blog post, which covers the benefits of adding short-term rental to your offering.
Have a suggestion for an area you would like us to explore further in this blog series or have further questions? We are always happy to talk, contact us on firstname.lastname@example.org. Be sure to join us for our next blog as we examine the opportunity for new PBSA assets in construction.
Lavanda is an award-winning SaaS platform used by the world's leading vacation rental, student and multifamily operators to increase net operating income through short and medium-term rentals. Clients include Greystar, CA Ventures, JLL, Savills and LaSalle amongst others.