Insights

Beat the market – the PBSA sector

Shortage of accommodation is still there but tender price inflation and demand for sites continues to challenge the market. We believe there is a route to beat this challenge.

This week’s Property Week PBSA Conference brings the sector into sharp focus, but is purpose-built student accommodation still the investable asset class it has been for far longer than many of us thought possible? And what are the trends determining viability as competition for sites is greater than ever and inflationary pressures play havoc with development appraisals.

Firstly, the demand for accommodation from students is as strong as ever. Recent research (by Stripe Property Group) shows that, for every student bed available, there are 3.1 students looking for accommodation.

Key players know that the best sites in the key provincial cities have long been snapped up – but the demand is strong and growth in supply of 6% since pre-pandemic is not matching an increase in student population of 8%. According to the same research, this represents a remarkable current shortfall of almost 1.5 million student beds to meet the demand required across the PBSA sector.

In this context developers are desperate to take advantage of the demand and to beat the current inflationary market, however this means a move away from current preferred contracting routes such as D&B where risk of material price increases is driving tender price inflation up to more than 10%.

Instead, a more intelligent approach is required – enabling the range of expertise across the supply chain to be used to achieve the value which the developer requires – and at the same time focussing on the optimisation of design so the building is as cost effective and efficient as possible.

This requires a delivery model more aligned with Construction Management where the expertise of specialist contractors is engaged early, designers are managed to develop designs focused on the client’s value profile and there is flexibility to adjust strategy, methodology and design as the project develops. In the current market, change and unpredictability are the only constants.

Critically this approach also creates the opportunity to manage the real costs of the building – the heart of the cost-led design approach which K2 has developed. Conventional approaches to cost management see the cost manager cost the design at the end of each work stage. Instead, the cost-led design model challenges the design team to design to a cost and value by setting out elemental targets and metrics which the design team commit to achieving. Proactive offsetting of any risk of an overspend in one element with a target reduction in another element results in delivery of the project within the cost limit.

This approach is seeing PBSA, BTR and other developments delivered to budget in a challenging market.

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