THE construction of new purpose-built student accommodation has “paused for breath” in Glasgow, but the market continues to hold long-term appeal for investors, new research has found.

The hiatus follows a “huge expansion” in the city’s student accommodation stock between 2015 and 2018, which across around 20 developments saw bed numbers increase by more than 6,700 – a figure representing around one-third of the current total.

However, research by property agent Cushman & Wakefield suggests development activity in Glasgow has been subdued in the last two years, and had slowed before the pandemic took hold.

Some 737 further beds are expected to be added in time for the start of the 2021/2022 academic year, taking the total to 19,158. However, no new developments opened last year.

David Feeney, UK student accommodation advisory lead at Cushman & Wakefield, said: “Even before the pandemic, the development of PBSA (purpose-built student accommodation) had slowed in Glasgow as the market took time to absorb the huge number of new beds created in a relatively short space of time.”

Despite the development slowdown, Cushman & Wakefield signalled its view that both Glasgow and Edinburgh continue to be under-supplied with high-quality student accommodation in what it termed the right locations.

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And it said that demand from international students post-pandemic would encourage developers to invest in the market, noting that rental levels were showing signs of recovery in Scotland’s two biggest cities.

Mr Feeney said: “Edinburgh and St Andrews are particularly attractive due to the level of under-supply and strong market fundamentals. Interest is also rising in Glasgow as the market returns to health following the “absorption” issues seen in recent years.”

A positive outlook for Glasgow was signalled by Colin Anderson, partner at private equity firm Maven Capital Partners, which is currently developing its sixteenth PBSA project in the UK.

Mr Anderson said he would “not say he has noticed a pause” and told The Herald it was normal for a city to go through a period of “absorption” following the scale of activity Glasgow has seen in years, adding that the city offers plenty of scope for further development.

With one recent report showing there are more than 62,000 full-time students in Glasgow, and only around 20,000 beds, between university and private sector developments, he said “there is a very large under-supply” in the market, even when factoring in students who stay at home.

“On top of that, applications to universities in Glasgow are growing by 2.3%,” Mr Anderson added.

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And it is not just in Glasgow where Maven sees the opportunity for further PBSA investment: it currently has three developments under way in Stirling and one in Edinburgh, and has previously completed projects in Dundee.

In Edinburgh, Cushman & Wakefield reported that there had been a slight increase in the number of student beds on offer to 18,770 for the 2020/21 year.

That number included 337 purpose-built beds at Pentland House, a building owned and operated by the University of Edinburgh on Robb’s Loan. Other new developments include Silk Mill near Fountainbridge, which will have an on-site bar, gym, karaoke rooms and an outdoor courtyard.

Mr Feeney expects rents for PBSA to average £203 per week in Edinburgh in the new academic year, driven by a lack of availability and the high price of land, making it one of the most expensive locations outside London.

He said: “Market rental growth in Edinburgh has been significant with prices increasing by 3.1% between 2019/2020 and 2020/2021.

“When compared with the 1.8% UK average, Edinburgh rents have performed very strongly.

“Despite the high price of stock in the market, overall stock quality is average, although schemes like the new Silk Mill development are trying to change this.”

In Glasgow, meanwhile, the agent found that rental levels increased by 2.1% to an average of £141 for an en-suite room, following a “difficult period”. Mr Feeney said the rise suggests the “huge number of new beds have now been successfully absorbed on to the market with student numbers increasing in all five institutions over the last five years.”

He added: “The Universities of Glasgow and Strathclyde both saw tremendous growth in postgraduate and non-EU students.”

Cushman & Wakefield declared that the student accommodation market has generally shown resilience in the face of the pandemic, with the development pipeline strong. However, it underlined the scale of the challenge posed to accommodation providers, noting that the 2020/21 year had seen the “greatest amount of rental discounting in the history of the sector.” Some 25% of all direct-let schemes offered some form of discount, the agent said.

Mr Feeney said: “We understand that as with the rest of the UK, demand has been impacted this year, especially from international students. Occupancy is therefore lower than the levels we have come to expect. There is optimism about the 2021/22 academic year, although we believe the lettings cycle will be later than ever as students wait to see how the academic year will be structured – for example if there will be an element of blended learning involved.”

Mr Anderson, who heads Maven’s property division, said PBSA continues to hold strong appeal from an investment standpoint, and noted his company was already looking well beyond the pandemic.

The investment house, which generally sells the accommodation it develops to pension funds or institutional investors, is “always looking two to three years ahead” as it assesses future demand from students, and even longer term as it weighs up potential buyers.