The UK's Purpose-Built Student Accommodation (PBSA) sector has demonstrated remarkable resilience in 2024, with investment volumes soaring to £2.45bn in the first half of the year, more than doubling the £1.1bn invested in H1 2023, according to Knight Frank's latest UK Student Housing Market Update.
This surge in investment, particularly notable given the broader economic headwinds, underscores the sector's enduring appeal to investors seeking stable returns in an uncertain market. The second quarter alone saw over £1.7bn invested, marking the strongest quarter since 2022, bolstered by Mapletree's acquisition of the Cuscaden Peak Portfolio, with UK assets valued at approximately £960m.
Regional assets continue to dominate investment activity, with an average annual investment of £2.1bn since 2019, compared to £570m in London. This disparity reflects not a lack of demand in the capital, but rather a scarcity of available assets, suggesting potential for future growth in London's PBSA market.
Despite the robust investment figures, the sector faces challenges. The development pipeline remains constrained, with fewer than 17,500 new PBSA beds expected for the 2024/25 academic year, representing a modest 0.6% increase from the previous year. This supply shortage, coupled with strong demand, has driven rental growth to an average of 7.6% across the UK in 2024.
The imbalance between supply and demand is particularly acute in certain cities. Glasgow, for instance, requires an additional 22,000 beds to meet current demand, while Edinburgh needs 17,000 extra beds, according to Savills' analysis of 20 major student cities.
Merelina Sykes, joint head of student property at Knight Frank, notes: "Despite economic headwinds and pre-election market caution, investors recognise the compelling long-term value proposition of student accommodation, particularly in a market where demand continues to outstrip supply."
For investors, the sector presents both challenges and opportunities. While prime assets with strong ESG credentials command a premium in an increasingly competitive market, there are significant opportunities to add value by retrofitting secondary PBSA stock, particularly in markets with the strongest supply-demand imbalances.
The government's supportive stance, including the commitment to maintaining current visa structures, has been welcomed by the sector. However, political uncertainty looms large, with potential policy changes related to student visas and international student numbers remaining a key concern for investors.
Looking ahead, the sector's fundamentals remain strong. The total number of students in the EU and UK is projected to grow by a further 10% by 2030/31, adding an estimated 2 million students in need of housing solutions. This persistent demand, coupled with the sector's counter-cyclical features, continues to attract investors seeking attractive risk-adjusted returns.
As the UK property market navigates uncertain waters, PBSA stands out as a resilient asset class offering stable returns and growth potential. However, investors must remain vigilant to political and regulatory changes that could impact the sector's dynamics. Those able to navigate these challenges while capitalising on the opportunities presented by the supply-demand imbalance stand to reap significant rewards in this evolving market.
