From PRS to PBSA: investor priorities shift

Institutional investors look set to rebalance their living sector portfolios towards student accommodation at the expense of private rental homes. The European living sector attracted €45bn (£38.4bn) in investment in 2024, representing 27% of total European real estate investment. Of that total, €33bn was attributed to the private rental sector and €6bn to purpose-built student accommodation. But that dynamic could change. In a survey of 50 institutional investors overseeing more than €1.4tn in global commercial real estate, Cushman & Wakefield found them increasingly rebalancing their living portfolios toward PBSA. Three-quarters of respondents surveyed plan to increase their exposure to the student housing sector within the next three years. That compares to 69% in the same survey a year earlier. The percentage of respondents eyeing capital deployment in PRS assets, meanwhile, fell to 73% from 90% over the same period. Stacking the numbers In Cushman & Wakefield’s survey, nearly half of all respondents identified PBSA as likely to be the top-performing living asset class for 2025, far ahead of PRS, favoured by 27%. The rise of the PBSA sector can be attributed to changes to regulation. In recent years, several countries, including Scotland and Ireland, have ramped up rent controls and tightened tenant protections, particularly in the PRS sector. These measures aim to enhance housing affordability but have also introduced new layers of complexity and risk for investors. In contrast, PBSA remains largely insulated from such regulatory headwinds. The UK’s Renters’ Rights Bill, for instance, exempts PBSA from the abolition of fixed-term tenancies, offering a crucial legal and operational advantage. This exemption preserves lease flexibility for student landlords and boosts income predictability, an increasingly rare commodity in residential markets. PBSA is also proving to be a resilient inflation hedge. The sector has consistently delivered rental growth that outpaces inflation, making it especially attractive amid economic uncertainty and slow growth forecasts. With shorter lease terms and high turnover rates, PBSA can recalibrate rents more frequently than traditional PRS assets, allowing it to adapt quickly to market conditions. In a recent interview with Estates Gazette, Joe Lister, chief executive of PBSA investor-developer Unite, said he struggled to see any other part of the living sector that offers the investment upside that student accommodation does. “The [build-to-rent] returns don’t stack up versus student – on a relative basis the student returns are more attractive,” he said. “Right now, nothing is stacking up versus student.” What people need Elsewhere in the living sector, a rising number of stabilised BTR assets across the 130,000 completed homes in the UK provides opportunity for stock to trade. Last month, Estates Gazette revealed that Apache Capital is looking to change strategy to acquire stabilised assets built in the past five years, targeting forced sellers and investors needing to recycle capital. In December 2024, LRC Group acquired a five-asset BTR portfolio with 608 homes for around £120m from a joint venture between Platform_ and Invesco Real Estate. Cushman found co-living has emerged as the fastest-growing segment, with 44% of respondents expecting to invest in the sector by 2028. Only 33% of respondents have existing investments in this asset class. At an Estates Gazette roundtable last month, Harry Philpot, principal at co-living developer Node, said in central London, co-living works better than more traditional BTR. “If you can do co-living – create homes, create affordable housing – that’s what people need. I see a lot of solely BTR developers have pivoted either to PBSA or co-living.” Another roundtable attendee, Tristram Ford, head of divestment at Watkin Jones, added: “Co-living provides density on a site, more than what you can deliver via BTR. BTR is quite difficult for us now in most locations, with build costs and where yields have moved, and where the funding markets are. [The investment market] seems to align quite well for co-living. Plus, a lot of funders really see this as an exciting opportunity that’s probably a little bit underdeveloped now.” Mood music The report found some 60% of investors anticipate allocations of 20% or more to the living sector, and around 80% expect their investments in the sector to increase over the next five years. Tom McCabe, head of EMEA living research and insight at Cushman & Wakefield, said: “The fact that investors expect to increase their allocations to the living sector over the medium term, extending across a wider variety of segments is a promising sign for the sector’s growth and evolution. “Yet nothing is perfect, and pricing mismatches, viability and political change are all causing challenges. But overall, the mood music is positive, with encouraging signs that investment in EMEA’s living sector is set to ramp up in years to come.”       Image © Adobe Stock