PBSA investments soar to £750M in 2024
The UK's purpose-built student accommodation (PBSA) sector saw a surge in investment to reach nearly £750 million in the first quarter of this year, research reveals.
The findings from Knight Frank are highlighted in its latest UK Student Housing Market Update.
The property consultancy says the value of 21 transactions marks a significant increase from the same period in 2023, which saw investments of just £148 million.
Despite being lower than the record-breaking starts of 2021 and 2022, the firm says that the resilience of the PBSA sector is evident.
'Student accommodation sector demonstrated its resilience'
The firm's joint head of student property, Merelina Sykes, said: "The UK student accommodation sector demonstrated its resilience in the first quarter, attracting significant investment despite the broader economic headwinds.
"While total deal volumes are down compared to recent years' peaks, the sector's strong performance reflects investors' confidence in its long-term prospects."
Knight Frank says that the continued interest from investors in the PBSA sector is driven by its 'strong fundamentals', 'counter-cyclical features', and the potential for attractive risk-adjusted returns.
However, the report also notes a shift in deal structures due to ongoing challenges in the funding market - though the sector is proving to be more attractive than 'traditional' housing sectors.
Funding for prime assets in prime university towns
Essentially, while lenders are interested in funding for prime assets in prime university towns and cities, for others - especially assets in secondary locations - then a joint venture structure is proving more favourable.
Knight Frank's report also highlights the slowing of build cost inflation to 3.1% in 2023, down from a peak of 15.5% in 2022.
This stability is supporting the viability of new and existing development projects.
That project pipeline sees London leading with around 26,000 student beds either under construction or with planning granted, followed by Manchester, Bristol and Nottingham.
Politics and policy will be key for the market
The firm also warns in its report that politics and policy will be key for the market this year and Katie O'Neill, the head of student property research, explains: "With money markets betting on two interest rate cuts in 2024, any improvements on the debt environment will boost transactional activity, but the focal point this year for the PBSA market will be on politics and policy.
"Heightened by the lead up to a General Election, Q1 saw restrictions to the student visa route come into effect."
She added: "However, it is important that policymakers do not conflate student visas with actual student numbers, with many students securing visas for multiple countries.
"Without a greater understanding of this and the economic benefits international students bring, there is a real risk of an over-correction, which ultimately has knock on effects for the financial health of the UK's higher education sector."
Glasgow has the largest imbalance
There's no doubt that the PBSA sector is growing and this week, research from Savills underlines this with news that Glasgow has the largest imbalance between supply and demand.
It says the city needs 22,000 extra beds to meet demand.
Edinburgh is also experiencing a shortfall and will need 17,000 extra beds to help cater to students heading there.
The firm analysed the PBSA market in 20 of the largest student cities and it found that 234,000 beds are required so the student to bed ratio falls to 1.5 - the preferred ratio.
Savills says the ratio is 2.7 across the sector with five cities having a ratio that is more than 3.0.
Glasgow tops the list with 3.8, while London and Bristol are at 3.6 and 3.5 respectively.
Jacqui Daly, Savill's director of research, said: "Both Glasgow and Edinburgh have a high student to bed ratio indicating a considerable lack of supply.
"In Glasgow, at present there are 3.5 students per available room, with the private rented sector (PRS) having to pick up the largest share when it comes to accommodation."
'Demand for student accommodation is still very strong'
The managing director of Accommodation for Students, Simon Thompson, said: "The figures for PBSA highlight that demand for student accommodation is still very strong.
"Private student landlords can look forward to high demand as students struggle to find somewhere to live for their studies.
"And it should come as no surprise that Glasgow still has student accommodation issues after the problems they have encountered in recent years."
He added: "There's a lot going on in the PRS, what with the Renters (Reform) Bill, but for student landlords who can weather the storm, the future looks very bright."
