The value of the UK’s purpose-built student accommodation sector will grow to £104bn by 2028, according to Knight Frank.
The agency said the current value of the UK PBSA market is £85.8bn, and that just over £1bn traded hands across 20 transactions in Q3 2023, up 23% on the comparable period last year.
Year-to-date investment volumes sit at £2.16bn, which is 48% lower than at the same point in 2022, following the subdued start to this year.
However, stripping out the Singapore Press Holdings portfolio – the acquisition of the entire SPH business, which took place in the first nine months of 2022, for just shy of £1bn – this year’s decrease on 2022 year-to-date volumes becomes a lot more modest.
Looking ahead to the final three months of the year, Knight Frank said it is tracking more than 25 opportunities that are presently under offer.
The firm’s expectation is that a further £1bn of deals will close in the final quarter, bringing year-end investment volumes in UK PBSA to around £3.2bn.
According to Knight Frank, forward commit, forward funding and joint venture style deals accounted for 25% of total deal volumes in Q3 2023, up from 12% in the comparable period last year.
Neil Armstrong, joint head of student property at Knight Frank, said: “Long-term growth in student numbers, coupled with a shortage of beds, continues to drive capital into the sector. Following the subdued start to the year, a healthy appetite from investors has been recorded in the third quarter, with more than £1bn changing hands.
“While deal structures are shifting to account for challenges in the debt market, investors continue to look favourably at the counter-cyclical nature of the market as a hedge against inflation.”
Merelina Sykes, joint head of student property at Knight Frank, added: “While investors continue to seek exposure to the market, the increased cost of debt continues to put pressure on deal structuring.
“Consequently, we are seeing more forward funding opportunities come forward. We also expect that joint venture strategies will rise in popularity as the year progresses as an attractive route into new markets and sectors, as well as a way for existing owners to diversify risk.”
Katie O’Neil, head of student property research at Knight Frank, said: “A loosening in the labour market and better-than-expected inflation figures contributed to the first decision [by the Bank of England’s Monetary Policy Committee] in September to pause rate hikes, in line with the stance taken by the US Federal Reserve.
“Whether interest rates have peaked will depend on whether the downward trend in inflation holds, but positively the Bank of England’s forecasts imply that base rates will remain at this level until Q3 2024. Any period of stability – and the confidence that brings – will bring a more competitive pool of buyers back to the market in Q4 and into 2024.”
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