Student Accommodation Assets Exhibit Resilient Performance With Total Returns of 7.7% for the Year to September 2023
The CBRE Purpose-Built Student Accommodation (PBSA) Index reported another year of positive total returns, at 7.7%, despite the more challenging economic and investment environment. Capital values at the all-asset level increased by 2.4 per cent and the net initial yield increased by 35 basis points.
The index result means UK PBSA assets outperformed UK all-commercial property over the same period. In comparison, total returns for all-commercial property (based on assets in the CBRE UK Monthly Index) were -11.1%.
Across all-PBSA assets, gross income growth in the year to September 2023 was 10.5%, while net income growth was 9.8%. Strong income growth meant that while yields increased by 35 basis points to 4.9%, capital values still increased year-on-year.
Larger assets showed stronger performance over the period, with assets valued between £25m and £50m posting the highest total returns (10.9%). However, assets valued at over £50m recorded the highest net income growth (11.9%) and continue to have the sharpest yield at 4.5%. Prime regional assets reported the highest total return (8.6%) and capital value growth (2.8%) in the year to September 2023, however London assets recorded the strongest income growth (16.4%).
The resilient performance of the Purpose-Built Student Accommodation sector reflects the strong fundamentals that currently exist within the PBSA market. Heightened construction costs are slowing delivery of new supply to the sector, which combined with a contracting HMO supply and increasing student numbers, has fueled strong rental growth for existing assets. Rental growth is driving total returns, which despite an outward yield shift of 35 basis points throughout the year, have been positive and capital values continue to grow.
Although transaction volumes have been lower than in previous years due to ongoing market challenges, intention from investors to deploy capital has never been higher. Indeed, some investors are making the most of quieter conditions, but many investors have been awaiting positive confirmation of outright performance before committing. The PBSA Index findings should provide an additional confidence boost for global capital looking to enter the sector.