PBSA investment volumes rebound to £750m in Q1 2024

Knight Frank's report highlights that politics and policy will be key this year for the PBSA market, with investor appetite remaining strong.

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Global property consultancy Knight Frank has launched its latest UK Student Housing Market Update, revealing that investment in UK purpose-built student accommodation (PBSA) was robust in Q1 2024, with a total of 21 transactions completed with a combined value of nearly £750m. The Knight Frank Student Property Team provided advice for 78% of these deals.

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

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

Merelina Sykes, Joint Head of Student Property, Knight Frank

The firms 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. 

According to the BCIS, build cost inflation slowed to 3.1% in 2023 from a peak of 15.5% in 2022, providing more stability to support viability for new and existing development projects.

“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 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.”

Katie O’Neill, Head of Student Property Research, Knight Frank

Knight Frank’s latest assessment of future PBSA products 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).