CBRE has said that the continued growth of the student-age population, along with a forecast recovery in non-EU students will drive strong demand for purpose-built student housing (PBSA) next year.
Upcoming constraints on student numbers in some countries will also create additional demand to study in the UK. The caps on international students in Canada and Australia will further enhance the UK’s appeal as a study destination.
Also, CBRE said the increase in tuition fees confirmed in the Budget should not have a significant impact on the overall demand for university places.
However, the supply of PBSA will continue to be constrained by several factors, resulting in an estimated shortfall of 620,000 beds across the UK in 2025. Currently, only 50,000 beds are forecast to be delivered over the next five years – concentrated in cities that host a Russell Group university, which are typically in higher demand from international students.
As a result of the anticipated increase in demand and greater constraints on supply, the supply and demand imbalance for PBSA is expected to worsen in several UK markets in 2025.
Occupancy is expected to remain strong in 2025, but some markets with higher supply will be more price-sensitive. For example, Unite recorded an occupancy rate of 97.5% in its Q3 trading update. Overall, rent growth is expected to remain robust and in-line with the long-run average.
Investment is expected to pick up in 2025, driven by a range of factors including falling interest rates and broad political support for the PBSA sector. Asset management opportunities will also remain favourable, and as forward-funding remains unviable, joint ventures will be more common in 2025, according to CBRE.
Viability will also remain challenging, with higher build costs, building safety requirements, sustainability measures, and increasingly challenging planning environments all negatively impacting development.
Demand will be strongest for best-in-class, sustainable assets with limited safety issues. Asset management opportunities will also remain favourable as they offer lower risk but robust returns. As forward-funding becomes increasingly unviable, joint ventures will become more commonplace for investors wanting higher returns.
There will also be opportunities for the private sector to partner with universities to replace ageing stock. However, the requirement for an increased level of due diligence will continue to delay transactions, especially as building safety regulations continue to be a point of focus.
