The UK’s PBSA Stock Needs To Be Decarbonised, But Investors Risk Making The Wrong Decisions

Two-thirds of the UK’s purpose-built student accommodation stock was built before 2015. Not only does this mean many properties don’t comply with energy-efficiency legislation, but they are even less likely to meet future standards as the drive to reach net-zero gains pace. 

However, even when property owners are keen to upgrade assets, a lack of understanding of building performance is creating two risks for investors and property owners, Utopi founder and CEO Jonathan Burridge said. First, there is the risk of owning stranded assets, and second, the risk of spending more money than they must to upgrade properties. 

“How do you decarbonise real estate when data is sparse and difficult to access?” he said. “The answer is to collect better data that can demonstrate how the right investments can be made in an economic and efficient way.”

Utopi provides an environmental, social and governance technology platform for multitenanted real estate, with a focus on managed residential assets. The company has achieved much of its recent growth in the PBSA space.

Utopi's technology measures environmental performance and determines how spaces are utilised, leveraging its own multisensor alongside real-time and granular utility metering and weather data. Additionally, Utopi’s Impact Toolkit enables operators to improve the performance of their assets, offering dashboards, reports, alerts, temperature control and the recently launched gamification app.

Increasingly, the company works with clients that are in the process of creating a strategy to decarbonise assets. 

“Three or four years ago, ESG became a compliance headache,” Burridge said. “But now there’s a realisation that ESG isn’t just about compliance. It’s a long-term transition to net-zero and the creation of better real estate for the benefit of everyone.”

Larger portfolio owners increasingly recognise they need to reduce the risk of stranded assets, Burridge said. However, they also realise that refurbishing properties and replacing gas heating systems with a more sustainable alternative, such as an air-source heat pump comes at a high cost. 

The first step a property owner might take is to ask a mechanical and engineering consultant to cost out a programme to upgrade a heating system. They might specify how many air-source heat pumps would be needed to heat a 300-bed student accommodation block.

The challenge is that they will be basing requirements on the expected energy use of the property or the average energy use across the whole block, Burridge said. If they can reduce energy consumption by monitoring use closely and educating students before this proposal is put together, a building owner could save considerable funds. They might need six heat pumps instead of eight, for example.

“It boils down to not overspecifying the infrastructure required,” Burridge said. “You can make far more efficient investment decisions by first shining a light on the performance of a building and understanding baseline consumption. The decarbonisation journey can be far more effective and fast.”

Until now, building owners have struggled to effectively collect the right data required to make a real difference in energy use, Burridge said. Data has generally been monitored on a whole-building basis rather than on an individual-room basis. 

“If data isn’t granular, you can’t understand space performance,” he said. “Average data per room hides the outliers. This year when students moved back into one building we monitor, within a week, a student had raised their room temperature to 35 degrees. Granular data allows you to see which spaces need to be optimised, then reduce overall energy use.” 

Once a property owner understands how students are heating their spaces, they can create a plan to reduce consumption. Utopi recently launched a product that allows an operator to better control energy on a room-by-room basis.  

Utopi also works with student accommodation operators to run campaigns educating students on reducing energy consumption. Students are given data via an app and rewarded for reducing their own consumption, for example. 

Understanding a building’s energy performance in detail is also beneficial when investors are making decisions about acquiring an asset, Burridge said. Utopi recently created an energy-efficiency benchmark for PBSA schemes to allow property owners to see how their building is performing against others in the market or against other properties in their own portfolio. 

Having this information can feed into the decision about whether to invest in an asset or whether the cost of upgrading the building is too high compared to its value.

“The stranded asset risk is a calculator of at what point does the upgrade of a building cost more than what the building is worth, therefore making it less attractive to generate income from,” Burridge said. “Using our calculations, property owners can have a better understanding of what a sound investment decision looks like.”

As capital markets increasingly acknowledge the risk of stranded assets and the need to upgrade properties, use of data will improve, Burridge said. While the cost of work such as switching from a gas system to an electrical system is high, it’s becoming essential. 

“Investors and property owners understand they need to assess portfolios properly to see how they’re protected against the future world of decarbonisation and what the potential investment risk is,” he said. “And better use of data is essential in this transformation.”

This article was produced in collaboration between Utopi and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.