Investment in the UK’s purpose-built student accommodation sector in 2023 was down by 45% year-on-year to £2.3bn at the end of Q3, according to research from JLL.
More than half of that investment (52%) has originated in the UK, which is a sharp increase from an average of 21% over the last five years.
Domestic buyers invested £1.2bn into the sector over the first nine months of the year, compared with a five-year average of £700m, despite the overall fall in PBSA investment activity.
Meanwhile, international buyers have cut back their activity in the sector. Those operating with capital from multiple locations have been particularly quiet, accounting for just 16% of investment against a five-year average of 43%.
Q3 itself, however, was “the most active quarter so far this year”, according to JLL. The £1.2bn invested in PBSA was a 56% rise on the same period last year, which saw £760m invested in the sector.
Cain International’s two forward-funding deals – the 1,522-bed Fusion portfolio in Liverpool, Manchester and Nottingham, and the 935-bed Olympian Homes portfolio in Leeds and York – accounted for nearly half of Q3 PBSA investment, with a combined total of £500m.
Development projects accounted for half of student investment volumes in 2023, compared with 31% in 2022. Strong rental growth and a gap between buyer and seller pricing expectations have stopped some owners of existing stock from trading their assets.
As a result of the uptick in development deals, investors have funded 9,900 new student beds this year – nearly 5,000 in Q3 alone – though this is below a record 14,500 in the same period last year.
So far this year, student housing has accounted for 34% of all UK living investment, which also includes build-to-rent and healthcare. This is a slight dip compared with the same period last year, when PBSA accounted for 36% of all UK living investment.
However, investment in student housing has picked up sharply in the past six months, following the lowest quarter on record in Q1, which saw just £134m invested in the sector. In the most recent quarter, student housing accounted for 58% of all living investment.
Huw Forrest, head of student housing, living capital markets, at JLL, said: “Investment activity collapsed in Q3 2022 as investors assessed what the new landscape looked like and where it might go.
“With transactions generally taking longer in a more tentative environment, we had expected a positive improvement from Q2 onwards, and this momentum is starting to build. We have revised our forecast for the year to see PBSA transactions of £3bn-plus and for a more positive outlook into 2024.”
Karl Tomusk, associate director for living research at JLL, said: “It is encouraging to see several significant development deals in Q3, particularly at a time when the shortage of student housing is abundantly clear.
“Despite a dip in activity in some corners of the market, investment has held up remarkably well these past six months. This is a testament to the pull of PBSA and the fact that buyers are continuing to complete deals when the opportunity arises.”
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