By Lucy Waters - Managing Director for Aria Finance
Property Wire
In a property market dogged by uncertainty, one asset class continues to defy the gloom: purpose-built student accommodation (PBSA).
Even as other parts of the market struggle with high finance costs and reduced investor appetite, demand for PBSA remains remarkably strong.
It’s not hard to see why.
With a dependable tenant base, structural undersupply and a proven ability to generate attractive returns, PBSA has all the hallmarks of a long-term, all-weather investment.
According to estate agent Knight Frank, investors pumped £3.9bn into UK PBSA in 2024.
While that is down from the record-breaking £7.2bn seen in 2022 – when interest rates were much lower – last year’s figure was 14% uplift on the £3.4bn reported in 2023.
What’s more, in 2023, Knight Frank predicted that the PBSA market would be worth an astonishing £104bn by 2028, up from £85.8bn in 2023.
In short, even in a more challenging economic environment, PBSA continues to attract institutional, private and international capital.
Solid fundamentals
The enduring appeal of PBSA lies in its fundamentals. The same Knight Frank data shows that returns delivered by PBSA have vastly outperformed retail and office space over the past decade.
Demand for accommodation consistently outpaces supply, and the ongoing shift towards high-quality, professionally managed housing means PBSA is increasingly seen as the gold standard in student living. For a growing number of students – especially those from overseas – it’s the preferred option.
Despite rising costs and tighter regulation, occupancy levels remain high – 96% last year, according to student accommodation research firm Bonard – meaning investors enjoy predictable demand.
On top of that, rents in key university cities grew at double-digit rates last year – another key attraction to potential investors.
There are headwinds – but they’re manageable
That’s not to say the market is without its challenges. Development costs remain high, with construction materials, labour and borrowing all more expensive than they were pre-pandemic – or even just a couple of years ago, for that matter. This means investors are having to be more selective about where they invest.
There’s also a growing regulatory burden. The Building Safety Act has forced developers to rethink how they design, build and operate PBSA . Gateway 2, introduced under the Building Safety Act, requires developers of higher-risk buildings like taller PBSA schemes to obtain full design approval from the Building Safety Regulator before construction can begin – adding time, cost, and complexity to projects, and potentially delaying delivery unless planned for early.
Affordability pressures are also becoming more acute, especially in regional cities where rent growth may be bumping up against student budgets. And while international student numbers have remained robust, Government moves to tighten visa rules have introduced a degree of uncertainty over future growth.
Yet for well-managed stock in prime locations, the outlook remains robust. Occupancy remains at or near capacity in many schemes, and investor sentiment – while more selective – is still positive.
A structurally supported long-term outlook
Despite the near-term pressures, the long-term picture for PBSA remains highly attractive. There are three core reasons for this.
Firstly, while overall student numbers dipped by 1% in 2024 – largely due to changes in visa policy – the student population is still much higher than pre-COVID levels. International and postgraduate students, who are more likely to choose PBSA, continue to form a rising share of total demand.
Secondly, universities have limited ability to expand their own accommodation, meaning the private sector will continue to play a critical role in housing students. In many cases, PBSA is no longer an optional luxury – it’s a core part of the higher education infrastructure.
Lastly, today’s students and their parents expect more. From high-speed broadband and secure entry systems to dedicated study spaces and wellbeing support, PBSA delivers a standard of living that traditional HMOs often cannot match. That gives it a competitive edge and supports long-term rental growth.
Accessing finance: challenges and opportunities
If there’s one area where PBSA investors and developers are feeling the squeeze most acutely, it’s finance.
Financing a PBSA deal is far from straightforward. It requires deep knowledge of the lending landscape, clear positioning of the scheme and the ability to match operational performance metrics – such as occupancy levels, rental uplift, and tenancy mix – with lenders’ appetite for risk.
That’s why you need a good broker – one that won’t just find you a lender but will also help you shape your investment strategy.
That’s particularly important in the current environment, where many banks remain cautious and only a handful of lenders are willing to back the sector confidently. For the right assets and with the right approach, deals can still be done – but expertise matters more than ever.
Resilience and reward
In a market where many asset classes are under pressure, PBSA has proven itself to be one of the most resilient performers. Its income profile is strong, its void risk is low and its tenant base – while transient – renews each year in predictable, high volumes.
While headwinds remain, they are not unique to PBSA. What sets this sector apart is its ability to deliver long-term rental growth and relatively stable yields, even in uncertain times.
For investors, that makes it a compelling opportunity. But success depends on understanding the nuances and on having the right partners in place.
