LODGE: A Living Sector Update Winter 2025
What Are The Trends In The Purpose-Built Student Accommodation Market In The UK Over The Last 12 Months, And How Will They Change In The Next 12-Months?
By Mark White
LODGE: A Living Sector Update Winter 2025
What Are The Trends In The Purpose-Built Student Accommodation Market In The UK Over The Last 12 Months, And How Will They Change In The Next 12-Months?
By Mark White
Despite a dip in Purpose Built Student Accommodation (PBSA) investments during Q1 2025, declines in student enrolment and high construction costs, we anticipate that continued demand from the UK’s student population will drive further investment into the PBSA sector in the coming year.
PBSA remains a popular asset class for investment, and one which many of our clients regularly raise as being of interest. The market is comparatively mature for the Living Sector, but in the last year or so we have seen challenges creeping in such as increasing construction costs, challenging land values and marginal declines in student numbers. With external macroeconomic condtions also proving challenging it is perhaps no surprise that (according to PBSA market research from 2025) PBSA investment has declined from the last quarter of 2024, with a total of £488m invested into PBSA in Q1 2025 compared to £575m invested in Q4 2024. In this note we suggest that confidence in PBSA is likely to rebound for a variety of key reasons:
- A strong domestic market supplemented by international demand;
- Reduction in interest rates improving viability of development schemes; and
- A comparatively mature sector within the living market with good quality existing stock that will be attractive to investors who are not looking to take development risk.
For the first time in a decade, the number of students who enrolled in UK universities declined by 1% in 2023/2024 as reported by the Higher Education Student Statistics (HESA). More specifically, there was a 7% drop in international student enrolment, likely driven by policy changes such as restrictions to students bringing dependents into the UK. Despite this decline in student enrolment numbers, there is still an overall incline, with enrolment remaining 16% higher than pre-covid years of 2019/2020. Furthermore, the UK saw continued high demand from students in reports of occupancy rates. Unite Students, the UK’s market-leading PBSA provider, disclosed that their Q3 2024 occupancy rate was at 97.5%, and have anticipated that a similar occupancy rate will be seen in the 2025/2026 year. This high demand is likely supported by the fact that British students are much more likely to study at university outside of their hometown, with The Economist reporting that less than 20% of British students live with their parents, compared for example to 50% in Spain. Whilst a rising cost of living is likely to impact on those numbers, the cultural norm remains compelling. In addition to fluctuations in the target tenant market, the PBSA sector faces headwinds from construction delays (for example in securing gateway approvals under the Building Safety Act), planning approval backlogs and increased construction costs. The Building Cost Information Service (BCIS) reported that construction costs will increase by a predicted 14% between Q2 2025 to Q2 2030. These increased construction costs and other development risks mean that investors are considering investing in existing assets, or opting to retrofit pre-existing stock. Retrofitting is reported as more cost effective, with BICS commentating that retrofitting costs 40-60% less than demolition and rebuild projects. Savills reports that this rise of large-scale retrofitting is a trend gaining traction. In addition investors and funders, rightly, are expecting to see robust compliance with the Building Safety Act throughout a development programme and the market continues to adapt to those challenges. Finally, and particularly in London, the cost of actually acquiring land to develop in the first place remains high despite a general softening in the real estate market. When all those factors are added up, it can be challenging for developers to give investors the confidence they need in a business plan – but as always those who can do so are likely to find capital available with an appetite for their product.
Future Prospects And Challenges
Despite the current dip in investment, sentiment remains broadly positive – not least due to demographic pressure. CBRE recently reported that by 2026 there will be 2.2 million students requiring accommodation resulting in a consequent shortfall of roughly 620,000 beds. Additionally, with UCAS projecting that application numbers could reach 1 million by 2030, a sharp rise from current levels, and that applications by UK 18-year-olds for 2025/2026 were already up by 2.2%, it is forecasted that demand will continue to accelerate. These figures would appear to confirm that the continued demand for student accommodation will extend into 2026 and thus provide investor confidence in the long-term growth potential for PBSA. If as is hoped the Renters' Reform Bill is passed with the expected carve outs that allow registered operators to continue to provide rolling tenancies, we would expect investors to feel a greater level of confidence in their ability to tap into that increased student market as HMOs become potentially less attractive. Additionally, the geopolitical state of the world could have real impacts on the PBSA sector in the coming year. The Financial Times reported that the Trump administration’s changes to the US’s Federal Education Policy, which has proposed cuts to funding and strict immigration policies, seems to be pushing students from the US to the UK. UCAS published that they had received 7,930 applications from American students as of July 2025, an increase of nearly 14% from the previous year. Amber, a student housing blog, recently stated that 64% of international students prefer PBSA over university halls of residence, a preference that is exacerbating the major private student bed deficits that remain high across most major UK cities, including London, Bristol, Birmingham and Manchester. With the current student bed shortages and stark preferences of international students, developers in PBSA will be able to leverage this captive tenancy stream if the US policy change continues to drive international student growth towards the UK. Finally, many analysts are forecasting that the Bank of England will cut interest rates from the current 4% to around 3% by the end of 2026. Physical cuts to interest rates are likely to reduce financing costs for PBSA projects, improving PBSA construction viability which will hopefully drive confidence in development investment.
Final Outlook
Notwithstanding the current state of global instability and the challenges posed by domestic and international student visa policy changes, the UK PBSA sector is likely to see increased investor confidence over the next 12 months as the demand for additional PBSA is forecast to continue to grow. This trend is likely to see investors focusing on acquiring assets in stable market areas, such as cities like London, Bristol, Birmingham or Manchester which face some of the largest deficits in student accommodation availability. Our investor clients remain keen on the PBSA market and those developers who are able to navigate the new regulatory world will find there remains capital available to them.
Final Outlook
Notwithstanding the current state of global instability and the challenges posed by domestic and international student visa policy changes, the UK PBSA sector is likely to see increased investor confidence over the next 12 months as the demand for additional PBSA is forecast to continue to grow. This trend is likely to see investors focusing on acquiring assets in stable market areas, such as cities like London, Bristol, Birmingham or Manchester which face some of the largest deficits in student accommodation availability. Our investor clients remain keen on the PBSA market and those developers who are able to navigate the new regulatory world will find there remains capital available to them.