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Student Housing Investment Sector Is Dominating The Market

The Student Housing Investment Sector Is Dominating The Market With £1bn Of Transactions In Q1 2018

The student housing investment sector also referred to as the student accommodation sector, experienced about £1 billion of transactions, in just the first quarter of the year. This figure was mostly made up of single asset sales from all types of investors.

As well as this, recent research on the figures from 2017 suggests that the Higher Education sector is dominating the UK’s construction markets. Purpose-Built Student Accommodation (PBSA) is a massive contributor to the results of this report, further emphasising the power of this investment sector.

In this week’s blog post, new research on the student accommodation sector will be addressed and its impact on the property market and investment sector, on the whole, will be considered. We believe that it is important to educate people when they make a big investment in property because it keeps clients informed on the most lucrative sectors and strengthens the trust between our team and the investor.

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UK Student Property Investment Experienced A High Level Of Transactions In The First Quarter

A few agencies in London produced their own reports showing varying levels of investment in the first 3 months of 2018. CBRE reported £975m worth of transactions within the sector, JLL included joint ventures in their report, pushing the figure to £1bn, and Knight Frank included joint ventures and forward-funding deals totalling to £1.2bn in Q1 2018.

What is so attractive about the UK student property investment sector to property investors? PBSA is affordable, with a studio room apartment reflecting a typical capital value of £50-70k. Because of the size of each room and the fact that it is a specialist property, these are non-mortgageable properties in the UK, meaning the process of purchasing is quicker because investors need to be cash-buyers.

Large companies such as Unite Students and Empiric have been reported by JLL to have purchased whole developments of PBSA for £24m and £10.6m respectively.

Knight Frank’s report found that during the first quarter, 66% of transactions were purchased for a value below £25m. James Pullan, the head of student property for Knight Frank stated;

“Product with affordably priced rents remain attractive to many of the consolidators in the market who see this price-sensitive target demographic to be fundamental to future investment performance in a relatively volatile macroeconomy.”

Many first-time buyers find this sector appealing for the same reason. It has become increasingly difficult to make a profit from buy-to-let properties if you don’t have a lot of capital to begin with. Similarly, it is tough to grow your portfolio in areas such as London as individual investors find properties are out of their price range.

Our blog post from February touches on the market moving towards student accommodation and away from traditional buy-to-lets for this reason. Read it here

In 2017, CBRE’s analysis of 58,883 bed spaces “showed a total return of 9.58% in the 12 months to September 2017 and average rental growth of 2.98% nationally.” With more international students from China, India and Malaysia choosing to study in the UK each year, PBSA demand is expected to rise in 2018 and beyond.

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Student Accommodation Investment Property Is Dominating The Construction Market

New research implies that the Higher Education (HE) sector is dominating the UK construction market with total output in the HE sector valued at around £3.9bn in 2017 and is predicted to rise throughout 2018. Student accommodation investment property or PBSA is a significant part of this growth.

AMA Research published their ‘Construction in the Higher Education & Student Accommodation Sector Report – UK 2018-2022’ which showed that in spite of the higher tuition fees, the UK’s HE student numbers continue to increase, especially in terms of international students. This rise has put more pressure on the university housing sector, making the development of more PBSA a necessity.

Whilst there are a lot of projects ongoing across the UK to meet the demand for more specialist student housing which are yet to be completed, there is definitely an upward trend in the amount of construction work focused on these student developments. As those current projects complete and new ones begin, it will render an increase in output over the medium-term, making the HE sector a central driver of construction activity and output.

The pressure on universities to provide housing for the growing number of students means that it is down to privately-funded PBSA to meet the demand. Only about 20% of students are being housed by university-run halls of residence, and about 1/3 of these halls were built before 1979! Simply put, they need major upgrading and luxury, high-specification PBSA meets the needs of modern day students.

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Many of our clients have invested in student accommodation because they see that this sector is lucrative. For more information on PBSA for first-time investors or portfolio diversity, fell free to make an enquiry with us! View our student accommodation investment page here.

At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment.

We also work with experienced investors to help them increase the value and profitability of their portfolios.

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