Global property consultancy Knight Frank’s new data highlights that by 2028, the value of the PBSA sector will grow to £104bn. The prediction has been based on the firm’s analysis of current operational student property, stock under construction and weighted average rents. Knight Frank said the value of the market for PBSA in the UK stood at £85.8bn in 2023.
According to Knight Frank, just over £1bn traded hands across 20 transactions in Q3 2023, up 23% on the comparable period last year. Year-to-date investment volumes now sit at £2.16bn, which is 48% lower than at the same point in 2022, following the subdued start to this year.
“Long-term growth in student numbers, coupled with a shortage of beds, continues to drive capital into the sector. Following the subdued start to the year, a healthy appetite from investors has been recorded in the third quarter with over £1bn trading hands. While deal structures are shifting to account for challenges in the debt market, investors continue to look favourably at the counter cyclical nature of the market as a hedge against inflation.”Neil Armstrong, Joint Head of Student Property, Knight Frank
However, when stripping out the Singapore Press Holdings (SPH) Portfolio which was an acquisition of the entire SPH business and traded in the first nine months of 2022 for around £1bn, this year’s decrease in 2022 year-to-date volumes becomes a lot more modest.
“A loosening in the labour market and better-than-expected inflation figures contributed to the first decision in September to pause rate hikes, in line with the stance taken by the U.S. Federal Reserve (FED). Whether interest rates have peaked will depend on whether the downward trend in inflation holds, but positively the Bank of England’s forecasts imply that base rates will remain at this level until Q3 2024. Any period of stability – and the confidence that will bring – will bring a more competitive pool of buyers back to the market in Q4 and into 2024.”Katie O’Neil, Head of Student Property Research, Knight Frank
The 44 deals which have closed so far sit above the five-year average of 40 transactions for the January to September period. Knight Frank says it is tracking over 25 opportunities which are presently under offer until the end of the year. The firm’s expectation is that a further £1bn will close in the final quarter, bringing year-end investment volumes in UK PBSA to circa £3.2bn.
According to Knight Frank, forward commit, forward funding, and joint venture style deals accounted for 25% of total deal volumes in Q3 2023 – up from 12% over the comparable period last year.
“While investors continue to seek exposure to the market, the increased cost of debt continues to put pressure on deal structuring. Consequently, we are seeing more forward funding opportunities come forward. We also expect joint venture strategies will rise in popularity as the year progresses as an attractive route into new markets and sectors, as well as a way for existing owners to diversify risk.”Merelina Sykes, Joint Head of Student Property, Knight Frank