“Value of UK’s PBSA sector to reach £72bn by 2022.” – Knight Frank
The UK’s Purpose Built Student Accommodation (PBSA) sector is set to reach a total combined value of over £72 billion by the end of 2022, according to global property consultancy Knight Frank.
Knight Frank’s dedicated Student Property team estimates that circa 24,000 additional PBSA beds have been delivered in 2021 – up from 14,000 in 2020 – representing a year-on-year increase of 71% and bringing the UK’s total to over 700,000.
Over 27,000 additional bed spaces are estimated to be in the pipeline for delivery in time for the 2022 academic year. Once built, this will take the total value of the UK student sector to £72 billion, based on an average estimated value of £96,000 per bedspace.
Neil Armstrong, joint head of student property at Knight Frank, said: “The forecasted delivery of beds in 2022 sees us return to pre-Covid-19 delivery levels, and will provide much-needed accommodation for students. This new supply will play a significant role in easing the pressure on existing housing stock in the UK’s university cities. As we look forward to 2022, the focus on student accommodation has never been so acute and, with unprecedented levels of competition between universities for the best students, universities must ensure that they get their accommodation offering right.”
Knight Frank’s latest Student Accommodation Survey (undertaken in partnership with UCAS), surveyed over 70,000 students either attending or applying to university this year and showed conclusively that value for money is the key driver in the accommodation choices of students.
PBSA occupancy bounced back in 2021 after lower than expected rates in 2020 when learning temporarily shifted online and restrictions on movement hampered students’ ability to travel. However, the sector has surpassed expectations in this current cycle with average sector-wide occupancy of circa 95%. This strong performance has been supported by the return of in-person teaching, a desire for the full university experience and greater demand from UK domiciled students.
Furthermore, despite disruption to travel and the requirement for students to quarantine on arrival, interest in UK higher education from international students remains strong. The latest October deadline applications data from UCAS for the 2022 cycle is comparable to the equivalent point in the 2021 cycle and higher than pre-covid levels. Applicants from outside of the EU are up 20% on the equivalent point in the 2020 cycle.
As well as an undersupply of student accommodation in the UK, with thousands of students unable to access purpose built accommodation, Knight Frank cites ongoing uncertainty and investment risk across global markets as a key driver for continuing investment into student assets.
Investors will spend £1.9 billion in the sector in the second half of 2021, taking the total spend for the year to £3.9 billion. Investment for the comparable period of 2020 was £5.9 billion, though £4.7 billion of that was for a single deal, namely Blackstone’s acquisition of the IQ portfolio.
While total spend may be down year-on-year, analysis of deal numbers points to a market with increasing activity. Cumulative deal volumes across this year are 12% higher than in 2020 and not far off the number in 2019. At least a further 20 deals are likely to occur in the first quarter of 2022 providing a strong start to the year.
The consultancy is also anticipating that North American and Asian investors will continue to play a key role in the UK PBSA market in 2022, with the strongest appetite for acquisitions coming from the United States, Singapore and Middle East. 2021 saw a weight of overseas capital committing to UK student accommodation, with landmark deals including acquisitions by Blackstone, Greystar and Mapletree. In 2021, investment from Asia in UK student property was in excess of £400 million.
Merelina Sykes, Joint Head of Student Property at Knight Frank, commented: “A pick-up in deal volumes is a positive sign for the market, suggesting investors are happy to look beyond the disruption in the 2020/21 academic year and have confidence in the sector’s ability to deliver long-term, stable income streams. Throughout the pandemic yields have remained stable, due in part to rental guarantees but also ongoing confidence and the view that pandemic disruption is short-term. It also reflects a wider pivot, which has taken place over the last 18 months, by institutional investors towards residential assets. The weight of capital now targeting PBSA has increased and it is our expectation that student property will remain a key target for both institutional and private equity in 2022 and beyond.”
Investor appetite for PBSA remains undimmed.
Sykes continues: “Global investors continue to acquire PBSA assets in the UK, fundamentally underpinned by the UK’s world renowned higher education system. The asset class offers a stable income stream, with strong year-on-year rental growth prospects. When compared to more mature, traditional asset classes, PBSA continues to stand out.”
Value of the UK’s Purpose Built Student Accommodation sector by year