In our most recent edition of the BTR vs PBSA: The Alternative Investment Series, James Gregory sat down with Brian Welsh, Head of Student at Round Hill Capital and Director at Nido Student. Brian talks through the past, present and future of PBSA in the UK and Europe, drawing upon his 16 years’ experience in the sector.
How has the Student Accommodation market evolved since you joined the sector?
I got involved back in 2005 when there were very few purpose-built student accommodation blocks and even fewer operators, all of which were still trying to work out how to best operate these buildings most effectively. Interestingly at that point, we were looking towards university accommodation as the most comparable operation and hiring from that background as well. We also had a lot of military applicants and candidates as it was thought that a Sergeant Major would be used to dealing with 18–20-year-olds. My first opening as a General Manager was a lot about crowd control, trying to keep 695 students who had all been to the same nightclub in Newcastle with 20 bouncers on a Tuesday evening, all coming back to their halls of residence at 3am with one night security guard. The key focus here was safety and this was very different compared to now where the focus is more one of customer service.
Operationally it was very different as well; there weren’t the same finance and payment systems in place for managing reservations. Finding out who had turned up for their rooms and who hadn’t, who had paid and who hadn’t was a mammoth task in itself.
Fast forward five years and the market had grown up a little, predominantly because of increasing competition and new entrants into the sector. This led to improved processes being put in place and a better experience for employees and residents alike as the sector became more institutional. With this came the arrival of some significant, more well-known investors. This also saw some of the better-known providers pick up smaller portfolios and incorporate them into their brand, such as the Liberty Living acquisition of the Dom@in portfolio in 2006. Although there was increasing recognition of the sector as a place to invest capital, this was still a long way from where we are today.
Move forward a few years more and we saw some more institutional investors begin to look more favourably at the PBSA sector, mainly due to its granularity of income. This was a point of debate for some investors, who had perceived this granularity as making the income stream less secure, but by now the sector had a 10-year + track record of stable income. These institutions had a lot of exposure in long term leases with big name retailers, and they suddenly saw PBSA comparably as a less risky investment model with a proven track record of return on investment. Some of these buildings are now so professionally managed on a large scale, that they were proving very attractive and creating something of a sweet spot for investment in the UK real estate market.
One of the key features of the sector today is diversity; we see a significant number of international students in the market who, in turn, can have different expectations to UK students of 10-15 years ago. This can be seen with wellbeing programmes, community facilities and flexible spaces for students to study and socialise. Nido are at the forefront of this and invest a significant amount of time and money communicating with students and looking for new ways to adapt to their changing needs, and to improve their experience in our residences.
You mention that it was common for PBSA providers to recruit from halls of residence and military backgrounds back in 2005; how has this changed in the present day?
Good question. Some of the fundamentals are still the same in terms of the skill set you need to have. In order to make sure the summer turnaround happens effectively, you need a military style operation to make sure that all facilities and maintenance issues are completed in time, rooms are cleaned, and buildings are ready to start welcoming students in September.
The big difference is the extra expectations that students now have, which pushes residence General Managers to think not just about the four walls of a room, but the extra components of why a building is successful. This is where having good sales techniques, B2B relationships and marketing skills come in. On top of this, the modern market is geared more towards student mental health and wellbeing with providers taking on more of a responsibility from an ethical standpoint so you can be as much a source of support as somebody collecting rent these days.
Where are Round Hill and Nido focusing their efforts for expansion over the upcoming years?
We have a lot of focus across Europe right now and a lot of my time has been spent growing this aspect of the business. There aren’t many beds to buy abroad so most of the growth will come from developing the assets those markets need. We are onboarding new investors over the upcoming months who share our vision in the way that we want to grow. Particularly during the pandemic, we were very lucky that Round Hill Capital have an extensive network of European offices that give us a competitive advantage in our knowledge of local markets and help make our expansion plans into new territories come to life. This is particularly helpful when considering local issues with regards to construction and development.
How do you think the shift towards co-living models affect the attraction on 2nd and 3rd year students to PBSA?
We love the idea, and we are already doing this in Germany for example where we have a lot of mixed tenure tenancies, with residents living alongside students. It has been done on the continent for many years and we see it frequently in the Netherlands as well.
The co-living concept is reasonably well accepted now by the investment market, but on the Real Estate side banks aren’t quite there yet because it hasn’t got an established track record like other asset classes. Planners also aren’t quite there yet in terms of understanding, often because they can’t establish how the the finished article should be operated. The tax regimes both in the UK and abroad are often unclear on exactly where co living fits, and this all leads to a lack of certainty for developers. This makes it very difficult to get land deals over the line and ultimately means the sector can’t expand at the same rate as other, arguably more accepted, property investment markets – this is one aspect that we see changing every day as we pioneer in markets. One of the UK and Europe’s most recognised providers, the Collective have fallen into financial difficulty at the time we are talking, and this casts further spotlight onto the viability of the sector. That being said, if done properly it has potential and is viable, but this won’t explode overnight – it took PBSA many years to become institutionally accepted as an investment vehicle with deep potential.
What do you think the key trends are going to be with regards to technology and how will that affect student experience?
I think a lot of the heavy lifting has already been done in a lot of areas of PBSA. Round Hill Capital and Nido Student, in particular, focused on all our buildings having super high-speed internet for all our students which is so important for both study and the evolving communication trends online through video.
The big wins on the administration side have also been transformed including the move from paper contracts to electronic contracts. This is both more efficient time wise but also from an environmental point of view where lots of trees have been saved.
We also pivoted our social programmes online at the start of the pandemic so we can now have outreach to further audiences than we would normally for initiatives such as health and fitness classes. Flower arranging seems to be very popular alongside cocktail and cooking classes.
Nido want to be at the forefront of technology in PBSA buildings and we are fully backed by Round Hill Capital who invest in prop-tech funds. This means we normally hear about things before they come to market and can adopt them quickly – such as our popular resident app.
What are the key values you see in Resident Life Programmes?
We have spoken about some of these earlier which we brand as ‘Community Building Activities’ including Health and Wellness programmes but I do want to talk about one of our key initiatives, ‘Nido Fest’. This attracted hundreds of students and was a live event in one of our courtyards attracting top DJs from the UK. We even found past students returning for the event.
We have also found that creating resident committees has really helped us evolve these programmes. How can we hope to improve without interacting with our customer base? This has been well measured over the last few years and ultimately has improved our student experience.
We are here, and we are successful because of our Residents; creating and curating amazing communities is what we do and will continue to do.
Want to read more? Have a read of some of the other interviews from this series:
- Jeremy Fletcher (CEO at Fresh Property Group) focussing on the importance of resident experience.
- Lavinia Clarke (Operations Director at Essential Living) discussing her experience during her first few years in the Build to Rent sector.
- John Blanshard (Director of Operations at Grainger) on the transition from Student Accommodation to Build to Rent.