PBSA: new regulations enacted in the wake of the Grenfell Tower disaster have important implications for developers of purpose-built student accommodation, as Matthew Osborne, Partner, writes in Real Asset Insight.
Picture this: after years of hard work, your teen has completed their university application in good time for the January deadline and accepted an early offer from their dream institution. A few months down the line, and they’ve even been allocated their top choice of accommodation: a brand new shiny purpose-built student block, complete with gym, cinema room, all-ensuite bedrooms, and a karaoke room, of course.
But before you load up the car with their student essentials (air-fryer at the ready), it’s worth bearing in mind that they might not be able to move in as scheduled.
Not because the building isn’t complete, but because it cannot be occupied until passing through the necessary Building Safety Act ‘gateways’, culminating in a Gateway 3 approval and a final certificate
issued by the Building Safety Regulator.
Flagship regulation
The Building Safety Act is the government’s flagship building safety legislation, which – supported by
subsequent secondary regulations and orders – aims to overhaul the UK’s building safety processes.
Receiving Royal Assent in 2022, the Act is a response to the Grenfell Tower fire, which killed 72 people in June 2017, and the subsequent Independent Review of the Building Regulations and Fire Safety
(broadly known as the Hackitt Review). This review, and the ensuing Grenfell Tower inquiries, recommended a series of improvements to construction processes, building safety, and asset reporting.
The Act principally established a new independent body – the Building Safety Regulator – which all building control experts must register with, and acts as an oversight body for building safety in
England & Wales.
The Act solidified the need for a ‘golden thread’ of information for assets, where safety information is considered and recorded at every stage of a building’s life, starting with the initial planning and design
process. For certain residential assets, or mixed-use schemes with some residential, above 18m in height, the Act created a new designation of ‘higher-risk building’.
Without the final certificate issued by the Building Safety Regulator, such high-risk buildings cannot be occupied, which has implications for purpose-built student accommodation (PBSA) and the growing
number of students demanding it. In 2024, the number of accepted UCAS applicants increased by 1.9% to its second highest ever level (after 2020).
Undesirable uncertainty
For developers and building owners, it means factoring in additional timeframes. This is particularly important for Purpose Built Student Accommodation (PBSA) developments, which not only fall primarily into the high-risk building category, but also typically aim to achieve practical completion towards the end of July/early August, allowing occupation for the same academic year.
Under the new regime this can no longer happen, and developers will need to plan their construction work to complete much earlier, for example between April and June allowing time for a Gateway three application and review by the Building Safety Regulator (BSR). The building cannot be occupied until a completion certificate has been issued, and in order to receive the completion certificate (Gateway 3), the client must demonstrate that the works have been carried out according to the approved plans.
Strict timelines
Strict delivery schedules are imperative in the PBSA sector to ensure sites are operational – and approved – in advance of each new academic year, which makes timeline uncertainty especially undesirable. To mitigate against this, building owners need to factor a potential three to four-month application timescale into project programmes, while also ensuring that they have an expert team to prepare robust information and submissions to avoid any further delays.
The repercussions of this are beginning to echo across the construction industry, with the majority of pipeline PBSA schemes subject to the new rules. As with any new layer in a development process, this is likely to cause disruption, delays and uncertainty of consent, all of which increase project risk factors.
Accordingly, contractors’ appetite for this process is likely to diminish, with many now unlikely to accept responsibility for gaining building control approval. This means development funding agreements and building contracts may now need to factor this in.
And although PBSA schemes can be voluntarily registered with Anuk, where schemes at risk of late delivery are required to provide early notification to the body and communication to students, the guidance reduces a developer’s wriggle room even further.
Attractive asset class
The UK’s paucity of student beds can be attributed to factors including a challenging planning environment, along with the pandemic-induced slowdown in construction, and build-cost inflation. Indeed, there has been an apparent slowdown in the construction of new PBSA housing: development proposals were filed for 27,000 student housing beds in 2022, of which approvals were granted for 24,000. This compares to a recent-year peak in 2016, where more than 72,000 beds were proposed and 56,000 approved, according to StuRents data.
But despite the challenges, PBSA remains an attractive asset class for forward-thinking investors, with an estimated current UK market value of £85.8 billion, expected to reach £104 billion by 2028.
Huge demand for beds
Student rents are expected to rise further in 2025 as higher financing and build costs have deterred developers from building new stock. Only 11,000 new beds were delivered over the past year, as shown by StuRents data. And the huge demand for student beds is expected to continue to outstrip supply. To meet future needs, approximately 330,000 new student beds would need to be added to the market by 2028, says StuRents, with some market estimates putting this figure significantly higher.
Although parents and students alike are of course supportive of the new safety regulations around high-risk buildings, the overall UK student population is now at its highest-ever level, so securing a bed for the teen’s first year away from home is the top priority.
With uncertainty around timely PBSA development completion, accommodation demand could switch to the HMO (house of multiple occupancy) model, thereby exerting further pressure on an already squeezed private rental market – meanwhile potentially leaving PBSA investors out of pocket for an entire academic year.
This article originally appeared in Real Asset Insight.
Find out more: Building Consultancy
