Knight Frank has released its Student Market Update for Q1 2025. It is the firm’s quarterly review of key investment themes in the UK’s purpose-built student accommodation (PBSA) sector. The report provides insights into current market dynamics.
In total, £744m was invested in the UK PBSA market over the first three months of 2025, with investment volumes in line with the same period last year.
In total, 18 deals were completed over the course of the quarter. 56% of deals completed in Q1 were for operational assets, marking the highest proportion of investment into operational schemes in any quarter since 2023.
“Investment in UK PBSA remained robust during the first quarter of 2025 and in line with last year’s volumes, reflecting continued positive investor sentiment toward the sector.
“From an operational perspective, we’re seeing the market return to more normal leasing patterns after the uncertainty experienced last year, with major operators anticipating occupancy rates between 97% and 98% for 2025/26, though with bookings occurring later in the cycle.
“There is a notable shift in investment strategy from last year, with a new preference towards joint ventures or conditional land sales with payment structures in place.
“We are also witnessing stronger investor sentiment towards income-producing operational assets. While prime sites continue to attract high levels of interest, we’re seeing an ongoing divergence in liquidity, pricing, and investor interest at both city and asset levels. This flight to the middle is driven by investors seeking mid-market and value-add assets that appeal to the deepest pool of student demand.”
Merelina Sykes, Joint Head of Student Property, Knight Frank
International student numbers remain 36% higher than pre-covid levels, despite a 7% year-on-year decline in new international entrants. They currently account for 30% of all full-time students in UK higher education.
The land market remained strong, accounting for 28% of total deals completed, while the funding market remained quieter due to continued pressure from debt costs. The current pipeline of PBSA beds is just shy of 200,000 across the UK, with 23% under construction.
However, the funding market remained quiet over Q1 2025, with the cost of debt continuing to put pressure on deal structuring. Bidding activity since the start of the year for assets on the market has been strong, however, and debt margins for both operational assets and development finance is becoming more competitive.
“Despite interest rates remaining elevated, we’re seeing debt margins become more competitive for both operational assets and development finance. Financial markets are now pricing in three quarter point cuts to the base rate this year, up from an expectation of just two cuts a month ago. If these materialise, the reduced cost of debt has the potential to significantly shift the investment and funding landscape, particularly for those investors who have remained on the sidelines. This could bring a welcome boost to transaction volumes in the second half of 2025.”
Lisa Attenborough, Head of Knight Frank Capital Advisory
There is an ongoing ‘flight to the middle’ trend according to Knight Frank, with investors increasingly selective and focusing on mid-market and value-add assets that appeal to the deepest pool of student demand.
For 2025/26, the market appears to be returning to more normal leasing patterns and rental growth, with anticipated national rental growth of 4% to 5% before gradually moving back to the pre-covid trend of 2% to 3% annually.
“One of the biggest challenges facing the sector in recent years has been a slowdown in supply, with a combination of higher build and financing costs and additional regulatory hurdles negatively impacting the delivery of new stock.
“From a development perspective, the Building Safety Act and the introduction of Gateway 2 has created new challenges which have impacted timing and slowed development pipelines at a time when the need for more student accommodation in many markets remains high. Investor appetite is there, evidenced by robust spend in the first quarter though deal structures have shifted to reflect the additional risk.”
Oliver Knight, Head of Residential Development Research, Knight Frank
