Purpose-Built Student Accommodation (PBSA)

The PBSA sector continues to be defined by an acute supply and demand imbalance. Student numbers in the UK are at record highs, which is driving strong demand for accommodation. However, the supply of available beds is not keeping pace with this demand and is increasingly limited by planning constraints and viability challenges. As a result, rental growth prospects for the sector remain strong.

Key Takeaways

1. A record high student population and broader demographic trends will continue to drive strong demand for PBSA next year. The fall in demand from students from the European Union (EU) will continue to be offset by increased demand from international students outside the EU.
2. Falling A-level grades and tighter entry requirements will continue to drive an increase in the number of students attending lower and medium tariff universities. This will result in additional demand for PBSA where these universities are located.
3. The supply of new PBSA will continue to be limited by several factors including onerous planning requirements and the need to modernise existing stock, further compounding the current shortfall of 580,000 beds. Supply will be further constrained by the availability of Houses for Multiple Occupation (HMO), which are a key accommodation option for many students.
4. Investment activity across the sector has been robust and will further improve in 2024. This will be underpinned by robust operational metrics and the strong return outlook.

Increased demand at medium and lower tariff universities 

With the UK student population currently at its highest ever level, PBSA demand is set to remain strong in 2024. This will also be underpinned by broader demographic trends. The Office for National Statistics forecasts that the population of 18-year-olds in England will increase by another 5%, or 30,000 people, in 2024.  

Demand for university places will also be robust in 2024. The Universities and Colleges Admissions Service (UCAS) showed that while acceptances were down slightly from the previous academic year, they are still 24% higher than the pre-pandemic level in 2019. The fall in students from the European Union (EU) will also continue to be offset by strong demand from international students outside the EU. This is reflected in data from the UCAS, which shows that applications from international students overall rose by 2% for the 2023/24 academic year. This was entirely driven by non-EU students, which increased by 4% year on year to 116,000. Overall, this will translate into a continued increase in university participation rates and strong demand for PBSA.  

However, there has been a shift from higher to medium and lower tariff universities. This is being driven by a general fall in A-level grades following the post-pandemic return to exams, along with some universities tightening entry requirements due to over-recruitment throughout the pandemic. We expect this trend to continue over the next few years and will result in additional demand for PBSA beds in areas where these medium and lower tariff universities are located. 

Figure 20: Full-time student population, UK

Note: Projections are provided by the Higher Education Policy Institute that forecast an additional 358,000 university places needed by 2035.

Source: HESA Student Records 2010/11 - 2021/22

High occupancy and a strong return outlook will drive investment

Challenges in the private rented sector will also place upward demand pressure on PBSA in 2024. Our research highlighted that an estimated 400,000 private rented homes have been sold in recent years. This will contribute to a shortage of Houses for Multiple Occupation (HMO), which form a key accommodation option for many students.

The shortage of new PBSA development will carry forward into 2024 as completions in 2023 have been at an all-time low, compounding an estimated shortfall of 580,000 beds nationally. Several factors, including high construction costs, increasingly onerous PBSA planning requirements, higher debt costs, and changes in building regulations, will continue to hinder new development throughout 2024. Any new supply will be focused on a handful of towns and cities with strong occupational markets and where viability is less challenging. 

Figure 21: Supply of PBSA beds

Source: Student Crowd and CBRE

Supply will also be further constrained as some older university stock will need extensive modernisation to meet student expectations and remain competitive. As a result, there will be a greater opportunity to reposition legacy PBSA in 2024, particularly where a new build is unviable. 

Despite the challenging environment, PBSA investment was robust in 2023. As debt markets stabilise, inflation recedes, and the economy recovers, PBSA investment will further improve in 2024. 

Investment will also be buoyed by the strong operational metrics and income growth prospects for the sector. Occupancy for the 2023/24 academic year is the strongest on record, and many schemes were at least 98% booked by Spring 2023. The same is expected next year, which is underpinning strong rent growth projections. Unite is predicting rent growth of 5%+ for the 2024/25 letting cycle. 

Investors will also have a greater focus on specific opportunities next year. For example, the management of highly reversionary assets offers the potential for strong returns and will drive investment in certain markets with robust fundamentals. 

Safety regulations and energy efficiency are key challenges in 2024 

New Building Safety regulations and proposed energy efficiency standards will be two key challenges for the PBSA sector in 2024. With two-thirds of the UK’s PBSA stock built before 2015, most buildings won’t meet certain measures stipulated by the latest safety regulations. For example, the need for a second staircase if the building is taller than 18 metres. 

In addition, investors and lenders are increasingly targeting energy efficient assets to meet their own environmental and sustainability strategies. 

From an investment perspective, these factors will channel investment away from older, less efficient assets which do not meet modern regulations and towards forward funding opportunities for new development. For owners, these measures will necessitate considerable CapEx to upgrade and refurbish their existing buildings next year.