UK PBSA investment holds steady in Q1

Investment in UK purpose-built student accommodation reached £744m in the first quarter of 2025, according to Knight Frank. The agency recorded 18 deals over the period, with total investment volumes only slightly down on the £750m invested during the same period of last year. Knight Frank said 56% of deals in the first quarter were for operational assets. That marks the highest quarterly proportion since 2023, reflecting a shift in investor preference amid a challenging development environment. Land deals accounted for 28% of all transactions, while the funding market remained quieter due to continued pressure from debt costs. The current development pipeline stands just below 200,000 beds, with 23% under construction. Knight Frank said the Building Safety Act and Gateway 2 regulations have slowed delivery and added new complexities for developers. The firm also highlighted a “flight to the middle” trend, with investors targeting mid-market and value-add assets that appeal to the broadest student demand base. National rental growth of 4-5% is forecast for the 2025/26 academic year, before easing back to the pre-Covid trend of 2–3% annually. Knight Frank added that a more selective approach from investors is driving divergence in pricing and liquidity across cities and asset types. While interest rates remain high, it noted that debt margins are becoming more competitive, and financial markets are now pricing in three base rate cuts this year. If realised, the firm said this could spur transaction volumes in the second half of 2025. Oliver Knight, head of residential development research at Knight Frank: “One of the biggest challenges facing the sector in recent years has been a slowdown in supply, with a combination of higher build and financing costs and additional regulatory hurdles negatively impacting the delivery of new stock. From a development perspective, the Building Safety Act and the introduction of Gateway 2 has created new challenges which have impacted timing and slowed development pipelines at a time when the need for more student accommodation in many markets remains high. Investor appetite is there, evidenced by robust spend in the first quarter though deal structures have shifted to reflect the additional risk.” Merelina Sykes, joint head of student property at Knight Frank: “Investment in UK PBSA remained robust during the first quarter of 2025 and in line with last year’s volumes, reflecting continued positive investor sentiment toward the sector. From an operational perspective, we’re seeing the market return to more normal leasing patterns after the uncertainty experienced last year, with major operators anticipating occupancy rates between 97% and 98% for 2025/26, though with bookings occurring later in the cycle. “There is a notable shift in investment strategy from last year, with a new preference towards joint ventures or conditional land sales with payment structures in place. We are also witnessing stronger investor sentiment towards income-producing operational assets. While prime sites continue to attract high levels of interest, we’re seeing an ongoing divergence in liquidity, pricing, and investor interest at both city and asset levels. This flight to the middle is driven by investors seeking mid-market and value-add assets that appeal to the deepest pool of student demand.” Photo by Emily Ranquist/Pexels