Navigating Headwinds: Key takeaways from the Kingswood PBSA roundtable at Coutts

Kingswood recently convened a high-level roundtable event hosted at the iconic Coutts headquarters, bringing together leading voices shaping the future of purpose-built student accommodation (PBSA) in the United Kingdom. The gathering drew senior representatives from Student iQ, GSA, Dominus, Cheyne Capital, Coutts, BentallGreenoak and Meanwhile Group, a cross-section of developers, investors, lenders and operators whose perspectives offered a uniquely comprehensive view of the sector.

Conversations ranged across four principal themes: scheme viability in the current environment, the impact of elevated construction costs, the state of occupancy across the portfolio landscape, and the broader outlook for the UK market. What emerged was a picture of a sector under pressure in the near term, yet one that retains compelling structural fundamentals for those able to navigate the cycle.

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Scheme Viability: The numbers are getting harder to stack

Perhaps the most candid thread of discussion centred on scheme viability. Across the table, participants acknowledged that the combination of higher financing costs, elevated land values and persistent build cost inflation has made it increasingly difficult to bring new schemes to financial close at acceptable returns.

Several attendees noted that the viability gap - the difference between what a scheme costs to deliver and what the market will support in rental income - has widened considerably over the past 24 months. In some tier-one university cities, even well-located sites are failing to stack up unless significant rental growth assumptions are baked into the appraisal, creating tension between developer ambition and lender caution.

Adding a further layer of complexity, the Building Safety Act's gateway regime is reshaping the development process for higher-risk residential buildings, including many PBSA schemes above 18 metres. The three-stage gateway framework, particularly Gateway 2 (before construction begins) and Gateway 3 (before occupation), demands comprehensive documentation of design intent, construction control plans and competency evidence at each stage. Participants noted that the practical burden is considerable: project timelines are extending as teams navigate submissions to the Building Safety Regulator, and the requirement for a "golden thread" of building information throughout the lifecycle is exposing gaps in contractor documentation practices and supply chain readiness. For schemes already contending with tight viability margins, the additional time, cost and procedural risk introduced by the gateway process is a material consideration that must be underwritten from the outset.

The consensus was that scheme design and operating efficiency are now front-and-centre of the viability conversation in a way they were not during the low-rate era. Operators and developers who can genuinely differentiate on amenity provision and management quality, rather than relying on rental growth alone, are best positioned.

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Construction Costs: The Iran conflict adds a new layer of uncertainty

Construction cost inflation has been a persistent challenge for the sector since 2021, but the ongoing conflict involving Iran has introduced a new dimension of uncertainty. Participants highlighted the knock-on effects on global supply chains, particularly the impact on shipping routes through the Strait of Hormuz and the consequent pressure on the cost and availability of imported materials, including steel, mechanical and electrical components, and specialist fit-out materials.

While the direct impact on UK construction programmes has so far been manageable, attendees were alert to the risk of second-order effects as the conflict evolves. Energy price volatility, with Brent crude responding sharply to regional developments, feeds directly into plant, transport and materials costs, and several participants noted that their contractors were already flagging contingency requirements around energy-intensive materials.

The broad view was that development programmes need to build in greater cost contingency than has historically been the norm, and that fixed-price contracting is becoming even more difficult to secure at competitive levels. For funders, this places renewed emphasis on the robustness of developer cost plans and the track record of their contractor relationships.

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Occupancy Rates: Resilient fundamentals, but pockets of softness

The discussion on occupancy was notably nuanced. At the headline level, the UK PBSA market continues to benefit from a structural undersupply of purpose-built beds relative to the student population, particularly in major university cities. Operators at the table reported that well-located, well-managed assets in strong university markets are continuing to achieve high occupancy.

However, there was acknowledgement of pockets of softness in secondary locations and at the higher end of the rental range. Affordability is increasingly a factor in student choice, and some operators noted that premium product in markets where cheaper alternatives exist has required greater marketing effort and, in some cases, modest rental concessions to maintain target occupancy levels.

The international student cohort remains robust overall, though participants flagged ongoing sensitivity to visa policy uncertainty and the long-term implications of potential shifts in UK government immigration positioning. The consensus was that diversification across both domestic and international demand, and across university markets of varying sizes, remains a sound risk management strategy.

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UK Market Outlook: Optimism for the patient investor

The final thread of discussion centred on the broader market outlook. Despite the near-term headwinds, the mood around the table was one of cautious but genuine optimism. The structural demand case for UK PBSA remains compelling: a globally competitive university system, a chronic undersupply of quality student housing relative to student numbers, and a growing recognition among institutional capital of the sector's defensive income characteristics.

Several participants pointed to a potential repricing opportunity in the current environment. As some development pipelines slow, the medium-term supply picture may tighten further, which could support rental growth for well-positioned existing assets. For investors with access to capital and the patience to underwrite through the cycle, this was characterised as an attractive entry window.

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Kingswood's perspective

The roundtable reinforced our view at Kingswood that the UK PBSA market is entering a period of genuine bifurcation. The challenges are real but they are creating conditions in which quality of execution, depth of market knowledge and strength of relationships will increasingly separate the leaders from the rest.

We are grateful to Coutts for hosting such a stimulating and open exchange, and to all the participants who contributed so generously to the discussion. Events of this nature are invaluable in navigating an environment that demands both rigour and adaptability.

Kingswood will continue to facilitate dialogue across the sector and to leverage our network to support clients in identifying and executing the best opportunities the market has to offer.