StuRents’ 2024 key PBSA sector trends to watch

With the purpose-built student accommodation (PBSA) sector at the top of the news agenda, StuRents share key trends to watch this year.

Richard Ward, Head of Research, StuRents | PBSA News
Richard Ward, Head of Research, StuRents.

2023 was a big year for the student sector, with rental growth continuing apace, whilst supply and demand pressures became ever more acute, and investor appeal soared as global institutions made moves to enter UK PBSA.

By Richard Ward, Head of Research, StuRents

All of this put the sector at the top of the news agenda, where it looks set to stay. As we step into a new year, the market finds itself at the intersection of fresh challenges and opportunities – for us at StuRents, the key trends to watch fall under three headlines:

Supply growth will remain limited

Continuing the trend of the past few years, supply growth will remain limited. 2023 saw just 12,000 new beds delivered, down from 36,000 in 2019. This slump is the result of a broader slowdown in planning, escalating construction costs and a surge in debt costs. Notably, PBSA is now predominantly being delivered by the private sector, meaning that universities are increasingly reliant on private operators to house students. Amid widespread news of university bankruptcies, this trend looks set to continue.

There is a looming question though about affordability. Newly delivered PBSA units in the past year tended to be considerably more expensive than the average UK student budget. Owing to historically high construction costs and the rising cost of debt, operators, developers, and investors are grappling with the challenge of bringing affordable accommodation to the market.

Meanwhile, domestic students are struggling with increasing costs of living and the annual maintenance loan increase is unlikely to be of much help. An overreliance on international students to fill beds is something that the PBSA sector needs to be wary of. Whilst the latest UCAS figures do show a fall in acceptance in non-EU admissions, the long-term remains positive. Of course, as always, demand growth also varies significantly between institutions, so understanding local markets and even intra-city variances is more crucial than ever.

Planning applications will rebound

In terms of planning applications, 2023 witnessed a subdued level of activity, continuing the trend of the past few years. In the first eight months, a total of 27,000 bed applications were submitted, with fewer than 13,000 receiving planning permission. This contrasts starkly with 2018, where 37,000 applications were proposed and 33,000 were granted approval during the same period.

With the current imbalance between supply and demand now driving new activity, we should hopefully see a resurgence in planning applications for 2024. However, this may not translate into an immediate increase in approvals. We’ll be watching closely to see whether planning reforms, from this government or the next, will change anything.

Rental growth will remain strong

Rental growth is continuing apace, with no signs of letting up. Last year the average cost of PBSA per person per week saw a significant 10.1% year-on-year increase. Meanwhile, the HMO sector experienced even more robust rental growth, soaring by 10.3%. Growth looks set to continue into this year: more than 60% of participants in a recent webinar we hosted anticipated a rental growth of between 5% and 9.9% for the 2024-25 season.

While this growth signifies market vitality, it also clearly carries risk in terms of future demand within the PBSA sector. There becomes a tipping point at which most students simply won’t be able to afford these rents, and we could see some demographics being priced out of London and other cities like Bristol, Bath and Edinburgh.

Escalating rents could even serve as a deterrent to entry into higher education altogether, triggering a shift towards alternative options amongst the younger demographic. To avoid this, it’s crucial that PBSA providers work closely with universities to help meet the needs of their students. A better understanding of the nuanced needs of each location is crucial to getting the supply right: 2024 could be a fantastic year for PBSA, provided that the sector makes informed decisions to get beds delivered where they are needed most.