• Home
  • Perspectives
  • Student Accommodation: 5 Reasons Why It’s a Lucrative Real Estate Investment in the UK

Student Accommodation: 5 Reasons Why It's a Lucrative Real Estate Investment in the UK

Written and contributed by QIP's Marketing Team

The UK student housing market has been a hot spot for investors for many years now, and the demand for purpose-built student accommodation (PBSA) remains as high as ever – with an increase in interest from real estate investors looking for alternative investments. Strong underlying fundamentals are at the core, fuelling interest in the sector through rapidly expanding student populations, strong enrolment in higher education, demand for highly-amenitised purpose-built accommodations, and a severe lack of quality stock. Making up a large part of Europe’s residential real estate stock, it delivers a vital service to thousands of students nationwide every year, providing them with a high-quality alternative to renting privately or living at home with their parents.

Discover the benefits of investing in PBSA and why it presents a lucrative real estate investment opportunity in the UK student housing market.

1. The Growing Appetite for UK Higher Education: A Boom for the Student Accommodation Market

The UK higher education system is experiencing a surge in student enrolment, with over 560,000 new undergraduate students set to start their academic journey this year. The data, as per UCAS, indicates a 4% rise compared to the pre-pandemic period of 2019. This growth trend is evident as acceptances have risen by 14% in the past decade. By 2026, UCAS forecasts that the number of undergraduate applicants in the UK will reach a million, 250,000 more than in 2021. With such high demand for student accommodation, the market has emerged as a booming real estate investment opportunity.

A graph showing projected increases in full-time undergraduate students

The demand for PBSA is expected to remain strong in 2023 underpinned by demographic trends, with the population of students entering university expected to continue rising and increasing participation rates. The number of international students will also increase, building on a record number in 2022.

With travel restrictions completely lifted and studying abroad back to pre-pandemic levels, this number is expected to rise significantly. UK higher education attracts students from over 200 countries globally, those who are strongly influenced by accommodation offers.   International students, especially from markets such as China and India, account for the bulk of the demand, are drawn to the high quality and safety that the purpose-built developments can provide, and are willing to pay the premium. The pound’s declining value will further encourage demand by improving the allure of studying in the UK. This year there is an expectation of seeing more students, including domestic students alike, opting for the fixed-cost model of professionally managed, all-inclusive PBSA options as they seek to maximise value and experience. Asset management companies are tapping into the high rental yields, low vacancy rates, and strong underlying fundamentals of this sector to offer investors a diversified and stable investment portfolio.

2. Meeting the Demand: A Structural Undersupply of Student Accommodation Beds in the UK Market

A graph depicting the current undersupply of bed spaces in the UK student accommodation market

The student housing sector is facing a major challenge in providing enough bed spaces for the growing number of students. According to research from Knight Frank, with an estimated 25,700 bed spaces under construction for the 2023 academic year, there is still a shortfall in supply compared to the rising demand. This is particularly evident in cities such as Bristol and Manchester, where the rising demand will continue to significantly outpace the supply 

UCAS data shows additional 69,500-bed spaces in the planning pipeline, but delivery is still expected to lag behind the growth in student numbers. As a real estate investment opportunity, student accommodation provides a unique and stable investment option, offering high rental yields and low vacancy rates. This highlights the importance of investing in the student housing market, as it offers a unique opportunity to meet the housing needs of the expanding student population in the UK.

UCAS data shows additional 69,500-bed spaces in the planning pipeline, but delivery is still expected to lag behind the growth in student numbers. This highlights the importance of investing in the student housing market, as it offers a unique opportunity to meet the housing needs of the expanding student population in the UK.

3. Record Occupancy Levels and Strong Rental Growth: An Optimistic Outview Outlook For Investors

The UK PBSA sector has shown its resilience and popularity with record occupancy levels and strong rental growth for AY 2022/23, providing investors with a secure rental income stream throughout the year and making it a popular investment option for those seeking alternative investments. The market is expected to grow with intense competition and significant rental growth prospects into the 2023/24 academic cycle. The will reassure investors of net income growth and support further investment into the sector during turbulent times.

Due to the structural undersupply of PBSA, typically markets across the UK are able to achieve 90%-92% occupancy, with certain markets and new quality products experiencing 100% occupancy for consecutive academic years. and the prospect of high total returns-driven by the uptick in rental growth are expected to contribute to the investor demand for PBSA assets. With leases renewed yearly, Landlords can price in factors such as inflation and rising energy costs continuing to fuel the rental growth trajectory. Based on our own experiences, we are proud to share that we achieved full occupancy across all our properties for this current academic year. Despite the economic challenges, QIP has remained dedicated to investing in high-quality student housing, particularly in top-tier cities across the UK. This is exemplified by our recent £15 million PBSA deal in Leeds and the acquisition of a prime site in Newcastle, where we plan to deliver a 350-bed scheme by the start of the 2025 academic year.

As a private equity firm based in Singapore, we understand the potential for strong returns in the UK real estate market, particularly in the student housing sector. We believe that investing in high-quality student housing in top-tier UK cities is a smart real estate investment strategy and are confident in the long-term prospects of this sector.

4. Resiliency of Purpose-built Student Housing Against Economic & Political Headwinds

The nature of the student housing business makes it a promising real estate investment opportunity, particularly in the UK, as it is resilient and less affected by economic headwinds. PBSA’s operating fundamentals are expected to continue growing despite global events impacting the macroeconomic landscape. However, the asset class is not shielded from all [factors] as rising energy costs and high-interest rates have also been challenging for the sector. Despite this investor, appetite remains strong as PBSA is one of the only real estate sectors to have seen a positive increase in total investment volume for 2022. This is supported by solid return prospects and the fact student housing is driven by demographic instead of economic shifts. Historical data from Shoosmiths has shown that student housing is a non-cyclical sector, in times of crises it has reliable track record of sustaining its demand for beds and student numbers. In May 2022, GIC & Greystar’s acquisition of Student Roost’s 23,000-bed portfolio in UK, presented an excellent example of institutional capital coming into student housing as it continues to be seen as a counter-cyclical and maturing asset class. City Developments Limited (CDL) recent acquisition of five high-quality purpose-built student accommodation assets in the UK, in a deal worth GBP215 million ($357 million), demonstrates their continued belief in the resiliency and potential of this asset class despite current economic headwinds.

5. An Opportunity to Diversify Portfolios through a Maturing Asset Class

Although still considered an alternative real estate asset class, the UK PBSA market is a matured investment sector with large-scale operators, sophisticated investors, experienced service professionals and wide and transparent market coverage. 

There has been a visible trend of more institutional and overseas capital entering the UK PBSA market. A record £7.2 billion was invested last year, up 69% year-on-year and notably higher than the long-term average of £4.1 billion over the previous five years. The sector’s underlying fundamentals and solid rental growth outlook represent a good investment opportunity for investors to balance their portfolios.


Let’s Talk


    Let’s Talk