PBSA Sector Set to Grow to £104 Billion by 2028
The PBSA sector in the UK is set for substantial growth, with new data from global property consultancy Knight Frank indicating that its value is expected to soar to £104 billion by 2028.
This prediction is based on the firm's analysis of the current operational student property, stock under construction, and weighted average rents. As of 2023, the PBSA market in the UK is valued at £85.8 billion, showcasing a sturdy trajectory for the sector.
Knight Frank's latest data reveals that the third quarter of 2023 witnessed over £1 billion in transactions.
These transactions were across 20 deals, marking a significant 23% increase compared to the same period the previous year.
Despite a 48% decline in year-to-date investment volumes compared to 2022, the PBSA sector demonstrates resilience, driven by long-term growth in student numbers and a persistent shortage of accommodation.
The Joint Head of Student Property at Knight Frank, Neil Armstrong, attributes the sustained capital inflow into the PBSA sector to the combination of increasing student enrolment and a scarcity of available beds. Despite a relatively slow start to the year, the third quarter saw a surge in investor appetite, with over £1 billion changing hands.
Investor Confidence and Market Dynamics
Deal structures are evolving to accommodate challenges in the debt market. However, investors continue to view the PBSA sector favourably due to its counter-cyclical nature, serving as a hedge against inflation.
Katie O’Neil, Head of Student Property Research at Knight Frank, notes that stability in the labour market and better-than-expected inflation figures have contributed to the decision to pause rate hikes, aligning with the stance of the U.S. Federal Reserve.
Forecasts from the Bank of England indicate that base rates are expected to remain stable until Q3 2024, fostering confidence among investors.
Market Performance and Expectations
Despite a dip in year-to-date volumes, excluding the Singapore Press Holdings (SPH) Portfolio acquisition, the decrease in 2022 becomes more modest. The 44 closed deals in 2023 surpass the five-year average of 40 transactions for the January to September period.
Knight Frank is currently tracking over 25 opportunities under offer, with an expectation that an additional £1 billion will close in the final quarter, bringing year-end investment volumes in UK PBSA to around £3.2 billion.
In Q3 2023, forward commit, forward funding, and joint venture-style deals accounted for 25% of total deal volumes, marking a notable increase from 12% over the same period the previous year. This shift in deal dynamics indicates a growing trend towards innovative investment structures.
The PBSA sector's projected growth to £104 billion by 2028 underscores its attractiveness to investors. With a strong foundation based on increasing student numbers and a persistent shortage of accommodation, the sector is well-positioned to weather market fluctuations and capitalize on emerging opportunities. As the year progresses, the PBSA market is expected to witness further investments.
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