High Costs And Regulations Mean Dublin PBSA Doesn't Stack Up, Developers Warn

Planning constraints and the high costs of finance and development mean that existing Dublin assets offer the best returns for the purpose-built student accommodation market. 

GSA International Head of Real Estate Projects Aaron Bailey told delegates at Bisnow’s Dublin conference on 19 March that despite robust demand and a rapidly growing student population in Dublin, market conditions made it difficult for investors to achieve reliable returns from new development.

“With the growth in students and the changing demographics compared with the low provision rate and restrictive planning, we are not necessarily seeing all of the opportunities being delivered because of current market dynamics,” he said.

“The best opportunities are for currently developed stock, and we are seeing incredibly strong leasing, with growing demand that provides opportunities to deliver a return without planning risks, for investing in well-located existing assets.”

Bailey said that it is up to 60% cheaper to build student accommodation in similarly sized markets elsewhere in Europe, but he said the state had a role to play because more than 40% of the costs are attributable to government taxes, notably value-added tax, compared with zero rating in the UK.

He added that the build standards in Ireland also meant that PBSA developers had to build 10% to 15% larger units than in the UK because of ceiling heights, with floor space up to 40% larger for studios. The larger rooms also raise land costs, he added.

“With all those factors, no wonder costs are so much more,” he said.

GSA has been adding around 1,000 beds a year since 2017, and Bailey said there was “absolutely an opportunity in the market and strong investor appetite, which has never been stronger.”

“The fundamentals are there,” he said. “But the current build cost restraints are the challenge.”

Delivering more student beds helps to free up residential space because fewer students would be looking for residential accommodation in the wider market, he said. Bailey added that the global trend is toward more social and sports amenities in PBSA developments, reflecting a “trade-off, reducing personal space for amenity space.”

NTM Capital has developed approximately 2,500 beds with GSA and Harrison Street, and NTM Capital partner Tom Anderson said that development obstacles were creating a major challenge for the sector.

“The main driver [in the market] is the increase in Irish students, up 9% over the past five years, with an 11% increase projected over the next five years,” he said. “In the meantime, there were 15,000 rooms in 2020, going to 23,000 in 2025-26, so the growth in PBSA has only just kept pace with likely accommodation demand. The shortfall means students looking at other forms of accommodation at a time of [overall residential] scarcity, as the market is getting tighter and tighter.

“We see that dynamic continuing, at least in Dublin. Rent caps have been very undesirable, plus operating expenditure costs, so we are not currently looking to sell anything. Our properties are cash-covering, but we’re also not finding anything we want to develop.”

He said that amid high demand in Dublin, there is “arguably too much” PBSA in Cork, with the risk of oversupply.

“In terms of balancing cost and amenity, we’re very focused on energy efficiency,” he added. “It’s very important for ESG and profitability, cutting energy costs. It’s a favourable situation, especially for those with existing assets.”

Resolving some of these issues will require fresh thinking about student facilities, Reddy Architecture Managing Director Rob Keane said, adding that the higher construction costs in Ireland were partly due to the onerous planning system. He said that it was “insightful” that the only two schemes progressing were where the government is subsidising the builds and possibly the rents.

“We're operating a system where guidelines are out of date. It’s one of the biggest challenges,” he said. “We’ve moved away from frivolous amenities. Students want group study spaces. The focus is outside the room. A recent survey we carried out highlighted control of the personal environment. A gym and being able to interact in social spaces were priorities.”

Fresh Property Group Chief Operating Officer Jane Crouch said operational expenditure is 20% to 30% more in Ireland than in the company’s equivalent PBSA schemes in the UK. In terms of demand, she said that the fundamentals still apply, but priorities are changing.

“The first priority is still location, location, location,” she said. “What students are prepared to pay a premium for is a gym — if you don't have that, you are discounting yourself — plus study spaces and external space, spending time outside but within the campus.”

In terms of sustainability, GSA’s Bailey said that as a long-term asset holder, there is an opportunity to improve energy efficiency to make investments and drive quick returns.

“As operational real estate asset management, working with other parts of the industry, you can actually see an in-year return in valuation,” he said. “The strength of Dublin’s educational institutions will drive continuing interest, and a softening in the debt market and the repricing of land, plus the easing of interest rates, will mean there will be opportunities for more targeted student bed investments.

“That may possibly move towards refurbishment, but it’s time for regulation changes. It doesn’t make sense to build at the moment.”