Through new PBSA projects and developments, we noticed how new markets have started growing rapidly. So, this week we thought it'd be interesting to have a look at what is happening in the PBSA market and how it is changing with the activities in new markets in Southern Europe. We started from a document published by the research and consultancy firm Bonard investigating the key differences between the average and premium segments of the PBSA market. The study focuses particularly on the amenities and facilities offered by different brands in different countries.
This is an important topic as it could hide crucial insights for developers and designers on the direction that some countries with a less developed sector are taking. The wider market itself could very well be changing quickly with the aftermath of the pandemic.
The main factor to keep in mind when looking at this data is that there is a significant unbalance between markets, with some such as the UK that is almost saturated and characterised by a high level of competition. On the other hand, some markets, such as Spain and Italy, are still substantially underserved with the virus outbreak that, once again, has likely delayed their growth. So we decided to integrate this review with data from different sources.
Tier 1 and Tier 2 Cities Premium Vs Average segments
The Bonard report observes the differences in the PBSA market starting from the distinction between Tier 1 and Tier 2 Cities.
Tier 1 Cities enjoy a fully-developed real estate market, and high competition thanks to the appeal of their schools, universities and facilities. Differently, Tier 2 Cities, are the up-and-coming ones. Markets not yet fully served, that present important opportunities for growth both thanks to lower costs and unbalance between offer and demand.
The distinction is usually also extended to the population difference between cities. This is naturally relative to the country analysed. In China, Tianjin and Suzhou, two cities that both count well over 10 million citizens, are considered tier 2 cities. In Europe, instead, tier 2 cities are the ones that count less than 1 million residents or even less than 500,000. Examples of European and UK tier 1 Cities are London, Paris, Berlin, Amsterdam, and Milan, while tier 2 ones are New Castle, Warsaw, or Padua.
The first graph shows how in larger cities, top-end student accommodations tend to include a wider variety of facilities. Instead, where the average ones score a higher percentage, most of the time is for those facilities that require a lower budget but still allow for group activities, even though there are some particular pieces of data, such as the ones about auditoriums/music rooms and tennis courts. Also, Bonard's report highlights how none of these facilities is offered in regular properties for rent.
Similar to the last two results for tier 1 cities, some of the ones in the second graph might seem counterintuitive. This could due to two main reasons.
First, while highly specialised, and more expensive spaces, such as gyms are more common in premium PBSA, the difference is less evident in the second graph. This could be due to a skewed proportion between the two types of accommodations in the different cities. Having just a percentage we could assume that while big brands are more present in big cities, less competitive, and smaller cities attract a higher number of smaller, average-level brands. The same, in fact, happens to multifunctional rooms, which are less in tier 1 cities’ PBSAs, but more in tier 2 ones. Bonard’s report, however, points out how multifunctional and flexible spaces tend to be more popular in lower segments’ products as they allow for a variety of activities with a much lower cost for developers.
Secondly, more expensive and focused facilities could be available more frequently in average PBSAs of tier 2 cities also because of generally lower costs of materials and labour compared with larger cities.
The same differences in the two graphs, in fact, appear also for Laundry Rooms, Bike Storages, Multifunctional Rooms, TV Rooms, Game Rooms, and Libraries.
One interesting takeaway then is that depending on the target audience, a wide range of services can be implemented even within a less expensive project. Tier 2 cities, with less competition and less expensive schools and facilities, provide a thriving market for more average PBSAs. Similarly, more appealing, tier 1 cities are the high-net-worth individuals’ target, making them more difficult for less expensive brands to develop the same kind of offer that larger firms have.
Different Cities Different Services
A second part of the report is dedicated to the popularity of various services and facilities in the different cities.
Here too there are a lot of interesting insights regarding major cities markets. Also, to these two graphs, we could add some variables that would help us get some interesting conclusions from the analysis. I’m talking about market saturation and growth opportunities.
Part of the differences between cities is arguably due to cultural factors. One above all is the “full board” in Italian and Spanish PBSAs, both countries where usually it’s given a higher value to meal sharing moments. However, we can integrate the data with a graph realised by Deloitte analysing some national markets’ sizes in terms of students' overall volume, the number of beds, and ratios between the two.
The image below shows how the UK, the Netherlands, and France have a much higher number of beds per student. This can lead to two conclusions. The first is that Germany and Spain are both underserved compared to the other three. As for Italy, according to related research by Savills, the difference is even bigger. While the provision of PBSAs is highest in the UK, with almost 30% of students staying in accommodations, Italy has the lowest percentage with less than 5%.
After looking at this then, one important factor is that, like for the first two graphs, the percentages could be skewed. So the higher amounts of almost all the facilities offered in Spain and Germany could be due to the lower overall number of PBSAs. The same goes for the services shown in the second graph for Spain and Italy.
But here is where it gets interesting.
These underserved markets, undoubtedly present a great opportunity for growth, even if they happen to be less appealing than others overall. So, the reason for this higher variety of services is arguably also down to the later development of the facilities.
In many sectors, customers are getting more demanding, and PBSA is no exception. Over the last few years, facilities, services, and points of contact have become more complex. So, ‘younger’ markets might represent an important indication of the direction of the industry, and the services that seem unnecessary now could become expected by residents in the future.
- Tier 1 Cities are more competitive with prestigious brands offering a wider variety of dedicated spaces. Here Gyms, Games, and TV rooms make the biggest difference between premium and average PBSAs
- Average brands can cater to similar needs through flexibility and multifunctional spaces
- Tier 2 Cities show more variety, with more space for smaller brands, and lower prices make it easier to plan a wider offer of spaces and services for students
- Cultural factors influence the residents' expectations in different national markets
- Less saturated and younger markets still have significant growth potential
- New markets' PBSAs and more recent projects could also be an indication of trends for spaces and services that even if slightly unusual now, could become fairly common in the future, due to an increasingly demanding customer base
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