50,000 student rental beds in the pipeline

Investment in UK purpose-built student accommodation in the first quarter of 2024 has been described as “robust.”

A total of 21 transactions were completed with a combined value of nearly £750m. Knight Frank says it was responsible for 78% of these deals.

First quarter investment in 2024 was up significantly on the comparable period of 2023 when just £148m changed hands. However, volumes were down on the bumper starts to the year recorded in 2021 and 2022.

The transactional evidence suggests PBSA yields have proven notably more resilient than many other traditional real estate sectors, shifting by only approximately 50-75 basis points from peak pricing.

Knight Frank suggests that investors continue to view the PBSA sector favourably due to its strong fundamentals, counter-cyclical features, and the prospect of attractive risk-adjusted returns.

The firm’s quarterly report highlights that deal structures are shifting to account for the ongoing challenges in the funding market. While funding is available for prime assets in prime university towns and cities, for others - particularly those in more secondary locations - joint venture structures are proving more favourable.

Merelina Sykes, Joint Head of Student Property at Knight Frank, comments: "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.”

Build cost inflation slowed to 3.1% in 2023 from a peak of 15.5% in 2022, Knight Frank says, providing more stability to support viability for new and existing development projects.

Knight Frank’s latest assessment of future PBSA product suggests London has the largest pipeline of around 26,000 student beds either under construction or with planning granted. Other large markets include Manchester (10,500), Bristol (8,700), and Nottingham (7,600).

The report has highlighted that politics and policy will be key this year for the market.

Commenting on this, Katie O'Neill, Head of Student Property Research at Knight Frank. says: “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. However, it is important that policymakers do not to 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.”