Prime London’s purpose-built student accommodation sector has seen yields soften to 4.25% in Q3 2023, a 0.5% rise from the same time last year.
The quarter saw £960m of investment in the sector, according to data from Savills.
Investment has risen compared to Q3 2022, when £468m was invested, and it was also the best quarter of the year, with Q1 and Q2 2023 attracting £285m and £872m of investment, respectively.
Super-prime regional and prime regional yields also softened by 0.5% in Q3 in comparison to last year.
Savills recorded super-prime regional yields at 5.25%, up from 4.75% last year.
Prime regional yields are at 5.5%, having softened from 5% in Q3 2022.
Lizzie Beagley, director, operational capital markets, at Savills, said yields are currently stable, and she does not expect any softening as the sector sees a bit more stability seeping through in the debt market.
She added: “A lot of equity parties have a huge appetite to transact in PBSA, with the capital generally targeting operational assets away from the development risk curve/ forward funding. There has been a lack of operational assets available to acquire this year as vendors have been holding out from disposals.
“Where we would see any super-prime regional operational opportunities, we very much expect to maintain these quoted yields where the assets will tick the credentials of scale, ESG, micro-location and the city/university quality. There is a delta of capital that has not deployed this year, which could lead to more activity in 2024 and better competitive tension.
“The development pipeline is coming through with quality counterparties, and there should be some high-quality forward funding opportunities in the market. We have seen M&G and Barings transact at 5.25% on high-quality funding deals and would hope that these yields should maintain with the best-in-class projects.”
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