Fresh Investment In Student Accommodation, But Dublin Provision Lags Growing Demand

Dublin’s growing student population and high popularity with international students may be good news for its educational establishments, but the city is in rapid danger of running out of student beds.

Despite strong demand, the purpose-built student accommodation market is suffering from the same issues as the wider residential sector, with inflation, uncertainty over rising costs and increasingly expensive debt putting the brakes on developments, resulting in a pipeline in danger of running dry.

With the next academic year approaching fast, concerns are increasing about how to ensure that Dublin can house its expanding student population.

“The PBSA market has bounced back very strongly since Covid, when campuses were closed and international travel became very limited,” Cushman & Wakefield Divisional Director Emma Reardon said. “Most student accommodation is fully occupied throughout the academic year, and residences are opening bookings earlier every year.

“Dublin has seen an uptick of international students, with around 18% of the student population from overseas. That’s a really strong proportion compared with other European cities and reflects the fact that the city has good educational institutions, teaches in English and has strong ties with the U.S., which also applies to Cork and Galway.”

Reardon estimated that the supply stands at around 19,000 student beds in Dublin, but she warned that new supply is coming on very slowly. In 2019, about 2,300 beds were added, whereas this year may see only 200 additional beds completed.

In its most recent report, Cushman & Wakefield said that despite the delivery of new stock declining, there remains on paper a significant volume of potential PBSA bed spaces in the delivery pipeline.

By the end of 2022, approximately 7,100 student bed spaces across 16 developments in Dublin had planning permission granted, a further 850 bed spaces had plans submitted and 2,000 were in the pre-planning stage. However, there is much uncertainty as to what volume of this will be delivered in the form of student accommodation. The adviser warned that several sites with planning permission are considering or have applied for new permission for residential use.

Cushman & Wakefield estimated that 1,700 bed spaces may be removed from the plans granted figure in the near future, while University College Dublin in late 2022 put the construction of Phase 2 of its on-campus student accommodation on hold due to rising construction costs.

However, some schemes are pushing ahead.

A Harrison Street and CA Ventures joint venture will develop a new PBSA scheme for 249 new student beds, which will be developed, managed and operated by CA Ventures’ in-house PBSA management company, Novel Student.

The development is on Parnell Street, close to Trinity College Dublin and Technological University Dublin.

Once complete, the building will feature amenities including a gym, cinema, games room, communal spaces, bike storage, study rooms and a dining room.

This is the JV’s second project in Ireland following its investment in a 623-bed PBSA development in Cork that is opening in the autumn. The JV also owns six assets in the UK that are expected to deliver 3,000 PBSA beds across the UK and Ireland.

Since launching its European strategy from Dublin in 2015, Harrison Street has acquired or developed 78 assets, including over 20,000 student accommodation beds. Chicago-based Harrison Street Managing Director and Head of Investment Europe Josh Miller added that since inception, the company has developed around 4,900 rooms in the PBSA sector across Dublin and Cork, of which it still holds about 3,000.

“It’s a market we are really enthusiastic about because the fundamentals are very strong,” Miller said. “Dublin especially has great academic institutions, and the variety of students, both international and domestic, supports demand, with lessons taught in English and a straightforward visa system.

“From an occupational perspective, demand is 100%, and although provision rates of around 20% of total demand supplied by the institutional investment sector is about double what it was eight years ago, it’s well below the circa 33% in the UK and the nearer 50% in the U.S.,” he said.

“The market has rebounded incredibly well since the pandemic, and it’s somewhere we would love to do more.”

Miller said that there are challenges, both in terms of sourcing locations that appeal to students and doing so on an affordable basis.

“Understandably, students want to live in the city to be close to the universities and what Dublin has to offer, and finding affordable land banks when you are competing with traditional residential and commercial real estate can be tough,” he said. “Planning is also difficult in Dublin, while there are additional height restrictions.”

Dublin And Cork Opportunities

Harrison Street is working with CA Ventures in both Dublin and Cork, with the companies enjoying a long track record through collaborations in the U.S.

“In Cork, our scheme is at the former Coca-Cola site and is also being completed with CA Ventures, opening in time for the September 2023 academic intake,” Miller said. “Cork is also a very attractive market, albeit that the PBSA sector is probably a little behind Dublin, so we’re pleased to get the opportunity to develop there early.” 

Marlet Property Group raised a €25M financing facility with finance house Cardinal to deliver a PBSA development in Prussia Street, Stoneybatter, Dublin 7.

The 193-bed development includes a lounge, gym, concierge and social room, and it is close to the Technological University Dublin campus at Grangegorman. The scheme will be ready for students in the autumn of 2024. 

“There is a significant need to deliver PBSA given the acute shortage of bed spaces in the Dublin market,” Marlet CEO Pat Crean said. “The site at Prussia Street presented the perfect opportunity for Marlet to provide a high-quality student campus while expanding our portfolio by delivering our first student accommodation scheme.” 

He stressed the importance of connectivity and added that at Prussia Street, the Luas Red Line is less than a kilometre to the south, while the Green Line to the northeast of the site is within 1 km and there are Dublin Bus stops along Prussia Street and Aughrim Street to the west.

“Collaborating with alternative lenders will play an increasingly important role in Irish real estate projects going forward and allow developers to be less reliant on traditional banking,” Crean said.

The company has a residential portfolio of over 5,000 units under construction, and Crean said that he expects to add to this in the coming years. However, the company would also like to develop more sites in the PBSA sector.

“Completing our first student accommodation scheme is a unique milestone for Marlet, and we will continue to explore opportunities in this space that align with the strategic goals of the business,” he said.

While Marlet and Harrison Street remain bullish about the demand for well-located accommodation, C&W’s Reardon warned that the pressing issue is viability given the cost challenges for the sector.

“Operationally, the assets are performing really strongly. So the issues are around debt pricing and the discrepancy between buyers and sellers in terms of price,” she said. “It is traditionally seen as a defensive asset class because it is less prone to commercial challenges and is a good sector for diversification, so we would expect that interest to increase.

“The demand is there, and it may require the universities to start building out on their campuses to deliver product.” 

And if every cloud has a silver lining, then the current institutional investment impasse is creating opportunities for alternative investors, said Cardinal managing director Paul Corry, whose company was keen to back the Marlet scheme on Prussia Street and wants to finance more high-quality PBSA schemes.

“First of all, we were very impressed with the high quality that Marlet has previously been involved with in PBSA, and secondly, also with the location of the project,” he said. “Our view is that in the very unlikely softening of the market, those projects in prime locations will be best placed to maintain value.

“But our opinion is that demand is really high, certainly matching prime PRS and with better yields, plus the summer income has proved very strong too,” Corry said. “With more and more international students, not just in Dublin but in Cork and Galway as well, as far as we can see there is no let up and PBSA should continue to grow.

“Marlet Group is a perfect example of a very well-regarded developer that we, because of the caution in the market, have had the opportunity to work with. It’s a very attractive market, and we are certainly open to do more business.” 

Harrison Street’s Miller said that he hoped that stabilisation would create a clearer picture for those wishing to transact.

“In many ways, it’s less about the higher debt rates and more about knowing where they will finish so that we are dealing with certainty,” he said.

“PBSA is suffering from the same challenges as the rest of the real estate market, with interest rates rising and a lack of certainty around where they will finish up. Choppy waters are not unusual. That’s the case across Europe and the U.S., but no one has put their pencil down, and deals are still being done.”