Investment in the UK PBSA sector reached £7.2bn last year – a 69% year-on-year increase and significantly higher than the five-year average of £4.1bn, according to new data from Knight Frank.
In its annual Student Property Report 2022-23, Knight Frank said that during the first nine months of 2022 just under £3.1bn was invested in UK PBSA assets, with more than £4bn invested in the final quarter. This was largely thanks to Greystar’s £3.3bn purchase of the Student Roost portfolio.
The report highlighted there is a growing imbalance between supply and demand with student numbers projected to grow by 16% between now and 2030. Despite the fact Knight Frank predicts 95,000 new student bed spaces will be added to supply by 2025, this won’t meet the projected growth in student numbers.
Neil Armstrong, joint head of student property at Knight Frank, said: “New supply is not keeping pace with the rapid increase in student numbers. Rising student numbers have been supported by high levels of participation among UK 18-year-olds – 37.5% of all UK 18-year-olds are attending university this year – while the size of the cohort overall is also up. Undergraduate numbers from outside the EU have also spiked in recent years, and now account for a record one in 10 of all placed applicants.”
This structural supply and demand imbalance, which is widespread in most UK university cities, is underpinning rental growth. On average, rents grew 2.6% during the 2021-22 academic year and Knight Frank thinks UK rental growth could exceed 5% for 2022/23.
Katie O’Neill, head of student property research at Knight Frank, said: “Despite rental growth, it cannot be denied that we are emerging from one of the most challenging operational periods in recent history, and the PBSA sector is acutely aware that striking the right balance between amenity provision and pricing is essential.
“Against the backdrop of a cost-of-living crisis – something students are not immune to – there has been a changing sentiment towards PBSA. Once seen as a more expensive alternative to renting in a student HMO, rent and utility inflation means that more students are now opting for the fixed cost model of PBSA which offers relative value for money.”
Looking ahead, Merelina Sykes, joint head of student property at Knight Frank, thinks deal volumes could rise further in the future. “While high inflation, rising interest, and higher financing costs have undoubtedly introduced an element of caution for the market, investor appetite remains undeterred. In recessionary periods, we often see student numbers rise as people look to upskill. This, coupled with the shortfall of student property across the UK, bolsters the case for investment and as a result deal volumes should rise,” she said.
