Will 2020 be another record year for PBSA Investment?

Pippa Lane, March 2020

Despite a 33% decrease in actual transactions, 2019 was an incredibly strong year for the student accommodation sector with JLL recording £5.2bn worth of transactions, the highest level since 2015 when £5.7bn was transacted. This performance cements the UK PBSA sector as an attractive market for global investors despite recent political uncertainty.


Key transactions in 2019:

  • Unite’s £2.2bn acquisition of Liberty Living;

  • Vita Student’s £590m acquisition of a 3,195 bed portfolio from DWS;

  • SPH’s acquisition of the Student Castle portfolio for £448 million;

  • Mapletree Investment’s £96m acquisition of Callice Court and Millennium Court in Coventry comprising 1,127 beds.

At the end of Q4 2019, with confidence expected to return to the real estate sector; anticipation that full time student numbers will grow by 27% by 2030 and demand will continue to outstrip supply in many cities by 30%; and the rumoured sale or IPO of IQSA’s portfolio, JLL predicted that PBSA transaction volumes could exceed £7.5bn in 2020! Although some may have thought this prediction was optimistic, the recent announcement of IQSA’s portfolio sale to Blackstone for a record £4.7bn, might just mean this prediction will come true.

This recent sale is the largest ever private real estate deal in the UK, representing strong investment commitment to the PBSA sector in the wake of anticipated student number growth and limited supply. Through robust investor appetite and increased market competition, Cushman & Wakefield report that yields in Q4 2019 in Prime London have moved inwards to 3.75%, whilst Super Prime Regional and Prime Regional market yields have remained stable at 4.75%-5% and 5.25-5.75% respectively. C&W believe that stability of income will be the most important factor for returns in 2020.  

At SFG, we believe it is an interesting time for the Student Accommodation sector. As the Market continues to mature, there are still many exciting investment opportunities for new entrants and old hands. As we progress further into 2020, investors should ensure that any investment decision is underpinned by market fundamentals including structural and demographic demand as these are essential for success.


Despite strong investor appetite, the sector is becoming more challenged by increased rent affordability concerns. According to JLL, the proportion of markets with average rents above £200 per week has increased by 13% since 2014/15, whilst the proportion of markets offering average rents below £125 per week (the threshold for affordable rent outside of London based on maintenance grant payments) has decreased from 55% to 36%.

C&W further report the average cost of a new private sector en-suite bed in 2019/20 is £6,883 per annum. This is over three quarters of the maximum maintenance loan amount available to students outside London. C&W indicate lower rents are currently only being delivered through increased competition, as the market is yet to deliver an ‘affordable’ product at scale.​

Although there will always be demand for a premium product, fuelled by the international market, the number of affordable accommodation options are decreasing as a proportion of overall supply. An increasing number of students (particularly domestic students) are now seeking accommodation that offers value for money, rather than premium specification or bespoke amenities.

Moving into 2020, with the draft London plan bringing rent affordability in to the spotlight, attempting to establish 35% of all new PBSA development as ‘affordable’ (equal to or below 55% of the maximum maintenance loan for living costs), with other cities expected to follow suit in the future; and a 55% increase in acceptances to Higher Education from the most disadvantaged groups in society between 2010 and 2019, how far can investors, developers or operators go to deliver innovative schemes at an affordable price?  

As rental affordability concerns grow and pressures increase to compete and provide better value for money experiences, we believe at SFG that fewer student micro-markets will be in a position to absorb luxury high rental schemes. It is imperative that investors, developers and operators pay close attention to each individual location and student market to ensure their product is appropriate for success.​

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