The UK’s
purpose-built student accommodation
(PBSA) sector has kicked off 2025 with a whopping £744 million invested in
the first quarter, data reveals.
Knight Frank’s latest Student Market Update shows this performance matches
last year’s figures and points to confidence in the market despite economic
headwinds.
A striking 56% of the 18 deals sealed in the first quarter targeted
operational assets, the highest share since 2023.
International students continue to fuel PBSA demand, making up 30% of the
full-time UK higher education population.
Although new international arrivals dipped by 7% year-on-year, their
numbers remain 36% above pre-Covid levels.
Knight Frank says this resilience underpins the sector’s appeal, with a
pipeline of nearly 200,000 PBSA beds, 23% of which are under construction.
PBSA investment is robust
The firm’s joint head of student property, Merelina Sykes, said:
“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.
“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.”
She adds: “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.”
Student rents forecast to rise
The land market for the PBSA sector also held firm, comprising 28% of
transactions, while financing challenges saw a muted funding market due to
elevated debt costs.
Investors are increasingly selective, gravitating towards mid-market and
value-add assets.
The major operators are projecting 97-98% occupancy for the 2025/26
academic year, though bookings are trending later.
Rental growth is forecast at 4-5% nationally, though this is expected to
ease to 2-3% annually in line with pre-Covid norms.
However, developments face hurdles, with the Building Safety Act and
Gateway 2 regulations slowing pipelines.
Strong demand for student accommodation
Oliver Knight, the firm’s head of residential development research, said:
“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.”
He added: “Investor appetite is there, evidenced by robust spend in the
first quarter though deal structures have shifted to reflect the additional
risk.”
Private student landlords
Simon Thompson, the managing director of Accommodation for Students, said:
“The Knight Frank report paints an encouraging picture of the PBSA sector.
“The sector’s resilience, driven by strong international demand and a focus
on mid-market properties, offers a stable investment landscape.
“Despite regulatory and cost challenges, the robust occupancy forecasts and
steady rental growth point to a market ripe with opportunity.”
He added: “There’s a lot to like from the figures for private student
landlords with strong demand and rising rent growth in the sector,
particularly.”
