The high rise of student accommodation

The demand for student spaces in the UK has risen steadily over the last eight years and this trend is widely expected to continue. At the same time, the availability of student accommodation is coming under pressure with the supply of privately rented housing reducing and existing student accommodation becoming increasingly outdated and unfit for purpose. For this reason, developers at MIPIM were excited about the opportunities presented by PBSA projects, despite the challenges caused by the Building Safety Act.

Below we touch on key factors that developers should consider when developing in the PBSA sector and the insurance solutions available to help manage these.

1. Delay 

With any construction development there is risk of delay and the financial implications of this can be significant, however this is enhanced for a PBSA development where it is critical that the delivery date aligns with the start of the academic year.

Limited recourse is available from the contractor for damage related delays and therefore appropriately structured Delay in Start Up cover should be considered to ensure the financial implications of this are adequately insured against. The financial exposure of a delay to a PBSA development is unique and can exceed that of a standard residential project, due to obligations to provide alternative accommodation included within student leases.

2. Building Safety Act

Many PBSA schemes will be classified as High-Risk Buildings under the terms of the Building Safety Act. This means that they will have to satisfy the three-stage gateway process before a building can become operational. There is no recourse against the regulator if, for any reason, the appraisal takes longer than expected and therefore many developers are having to factor this into their programming to ensure appropriate time for the process to complete. Whilst an insurance solution is not available to insure against the financial impact of regulatory delays, it is important that thought is given to the interface between construction completion and Gateway 3 and whether this interim period is insured on a construction or a property insurance policy. Various different insurance approaches can be taken depending on the contractual position and whether the Contractor hands over the works before or after Gateway 3.

3. Building Materials and Modern Methods of Construction

Many projects are exploring the use of structural timber either across the board or in combination with other materials, as well as modular and volumetric construction. These materials and methods have many benefits, including contributing to net zero ambitions and programme savings, but also can lead to reduced appetite from the insurance market due to negative experiences, in particular water and fire related losses. Insurance options are available for developments of this nature, however appropriate risk management methods should be considered in the design phase and employed during construction. For further information, please refer to our Modern Methods of Construction paper.

4. Water and Fire Risk

Key concerns of the construction insurance market, particularly in the final stages of a project, are losses due to fire and escape of water. The construction industry is already familiar with “The Joint Code of Practice on the Protection from Fire of Construction Sites and Building Undergoing Renovation” (commonly referred to as the Fire Joint Code of Practice) and the requirement for its application under most construction insurance policies. Along very similar lines to the Fire Joint Code of Practice, industry bodies have come together and recently published the “The Joint Code of Practice on the Prevention and Management of Escape of Water on Construction Sites and Building Undergoing Renovation”. It is encouraged that Developers and Contractors alike become familiar with the contents of this document and include the recommendations within their water management strategy to mitigate losses in the construction phase and improve the availability and cost of insurance cover.

5. Rail Exposures

Student accommodation projects are often located near or adjacent to operational railway lines. In such circumstances, it is likely the developer will need to enter into an Asset Protection Agreement (APA) with Network Rail (or equivalent). These agreements impose a requirement to purchase a significant amount of third party/public liability cover and also include onerous indemnities related to delay or interruption to the rail network. 

To explore the above considerations in more detail and receive insights from our construction insurance specialists on how these risk factors can be best managed, please download our PBSA paper here.