"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"
- Merelina Sykes - Knight Frank
Knight Frank has launched its latest UK Student Housing Market Update, revealing that investment in UK PBSA reached £2.45bn in the first half of 2024, eclipsing the £1.1bn invested in the same period a year earlier. More than £1.7bn was invested in the second quarter of 2024 alone marking the strongest quarter since 2022.
According to Knight Frank, investment volumes in Q2 were strongly inflated by Mapletree's acquisition of the Cuscaden Peak Portfolio, with the UK assets valued at approximately £960m.
The firm’s analysis shows that regional assets continue to lead investment, following a trend from previous years. On average, £2.1bn has been invested annually in standalone regional assets since 2019. This compares to an average annual spend of £570m on single assets in London over the same period. The lower turnover in London reflects a lack of supply of PBSA opportunities in the capital, rather than faltering demand, Knight Frank says.
The report also points to a constrained development pipeline, despite the increase in investment seen so far this year. For the 2024/25 academic year, fewer than 17,500 new purpose-built student beds are expected to be added. This modest increase represents only a 0.6% growth compared to last year's delivery and falls significantly short of pre-pandemic averages.
The total pipeline of student beds across the country now stands at approximately 160,000, with 22% currently under construction. An additional 49%, representing 78,000 beds, have secured full planning permission.
Merelina Sykes, Joint head of Student Property at Knight Frank, commented: "Robust investment in the first half of 2024 demonstrates the resilience and attractiveness of the UK student accommodation sector. 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."
Katie O'Neil, Head of Student Property Research at Knight Frank, added: "With demand from students for housing high in a number of locations and supply not keeping pace, rental growth for the sector remains elevated, averaging 7.6% across the UK in 2024.”
Knight Frank said that just 258,000 new PBSA beds have been added to supply over the last decade, accounting for 35% of total stock. That means that 65% of the existing PBSA supply in the UK was built pre-2012. For investors, this is both a challenge and an opportunity.
On one hand, a flight to quality for prime stock with strong ESG credentials has created a narrower and more competitive investment market. Yet there are opportunities to drive value by retrofitting secondary PBSA stock, particularly in markets where the supply-demand imbalance is most strong.
O’Neil concluded: “The government's acknowledgement of the sector's financial challenges and its supportive stance are encouraging signs. The commitment to maintaining current visa structures is a positive outcome for the market.”
