"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 - Knight Frank
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 the first quarter of 2024 with a total of 21 transactions completed with a combined value of nearly £750 million. Notably, Knight Frank Student Property Team provided advice for 78% of these deals.
First quarter investment in 2024 was up significantly on the comparable period of 2023 when just £148 million changed hands. However, volumes were down on the bumper starts to the year recorded in 2021 and 2022. The transactional evidence suggests PBSA yields have proven notably more resilient than many other traditional real estate sectors, shifting by only approximately 50-75 basis points from peak pricing.
Knight Frank has said 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 firm's 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.
Merelina Sykes, Joint Head of Student Property at Knight Frank said: "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.”
According to the BCIS, build cost inflation slowed to 3.1% in 2023 from a peak of 15.5% in 2022, Knight Frank said, providing more stability to support viability for new and existing development projects.
Knight Franks latest assessment of future PBSA product 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).
The report has highlighted that politics and policy will be key this year for the market.
Katie O'Neill, Head of Student Property Research at Knight Frank said: “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.”
