Purpose-Built Student Accommodation Achieves Highest Returns in Seven Years
· Growing Student Population & Limited Supply Driving Yield
· Capital values increased by 11.3% - largest uplift since 2015
November 30, 2022 – Returns on Purpose-Built Student Accommodation (PBSA) rose to their strongest level since 2015, at 16.7% for the year to September, according to a new report.
CBRE’s PBSA Index showed the asset class outperformed all commercial property which saw returns of 13.8% over the same period*.
Capital value growth achieved 11.3%, the main driver was yield movement which improved by 21bps overall in the year to September 2022.
Tim Pankhurst, Executive Director in Valuation & Advisory Services said: “There has been exceptionally strong returns for the sector during the year, and despite economic headwinds it could be another strong 12 months ahead.
“The market has seen record growth of asking rents for the 2023/24 academic year and, despite the increase and the fact that tenancies will not start until September 2023, many schemes are reported to be fully booked already, especially in markets such as Durham, Glasgow and Bristol.”
He explained, this asset class performance was underpinned by demographic trends and increasing demand from international students.
Pankhurst added: “Higher education participation rates continue to rise, and international student numbers are forecast to grow beyond the record volume. Demand is also forecast to remain strong as the UK’s student population continues to grow.”
The index also showed this strong demand, coupled with supply-side constraints, led to solid rental growth results and prospects for the sector. Net rental values across all PBSA assets increased 3.6%.
Jen Siebrits, Head of UK Research at CBRE, added: “Despite its strong performance, the student accommodation sector is not immune to wider macroeconomic events. Many operators have seen cost budgets for 2022/23 increase by over 10% as a result of inflationary pressures. However, some operating cost increases are anticipated to be relatively short-term, with inflation expected to fall back significantly in 2023 and 2024.
“Looking forward, the outlook for the sector remains positive given strong demand indicators. The 2022/23 academic year has started positively for many UK PBSA operators, driven by high application rates and a wider distribution of occupational demand across UK university towns and cities. With increased taxation and further regulation, the supply of Homes of Multiple Occupation for students is falling, which will boost demand for purpose-built student accommodation.”
Higher education participation rates continue to rise, and international student numbers are forecast to grow beyond the record volume. Demand is also forecast to remain strong as the UK’s student population continues to grow.