Savills has moved Canterbury, Durham and Glasgow up to First Class in the Savills Purpose-Built Student Accommodation Development League Table, indicating particularly strong development opportunities in these cities.
Savills said all three have seen strong growth in their student populations, with Durham and Glasgow also seeing rising applications, which will put pressure on existing residential stock.
Canterbury, Durham, and Glasgow have joined Bath, Birmingham, Brighton, Edinburgh, London, Manchester, Oxford, and St Andrews in First Class – all cities with very high student demand.
Southampton, Bournemouth, and Cambridge have moved up to the Upper Second tier of the Savills league table, as rising student numbers put pressure on existing stock and with a relatively limited pipeline of new schemes to meet increases.
Additionally, the shortage of supply combined with rising student numbers has resulted in strong rental performance, with over 7% growth forecast for 2023/24.
Shortage of student stock
The latest UCAS application data reveals that the number of students starting their undergraduate degree has topped 600,000 for the second year in a row – with 618,000 starting in 2022/23 and 622,000 in 2023/24. This equates to a first-year cohort larger than the population of Sheffield looking for accommodation each year.
Even more growth in demand is expected, with UCAS projecting that the UK could reach 1m university applicants in 2030, which will place existing PBSA stock under even greater pressure.
James Hanmer, head of UK PBSA investment and co-living, in the operational capital markets division at Savills, said: “The UK remains one of the key global destinations for students looking to study abroad. There are currently more than 600,000 full-time international students, up from just over 400,000 five years ago, according to figures from the Higher Education Statistics Agency.
“While there has been a fall in EU students in the wake of Brexit, this has been more than offset by significant growth in the number of students from India, as well as continued strong numbers from China and elsewhere.
“We know that strong application figures from these countries are a huge positive for PBSA demand: international students are 60% more likely to live in PBSA than domestic students, with those from India more than twice as likely.”
Incoming investment appetite
Over the past three years, 82% of investment in UK PBSA has come from overseas, with investors from the USA and Singapore accounting for 47% and 24% respectively over this period.
While investment has been limited to date in 2023, activity is expected to pick up in the second half of the year, supported by rising rents, which are offsetting the challenges faced, including operational cost increases.
Savills latest research also highlights that despite the economic environment and implications of higher interest rates, early indicators from the debt market in 2023 reveal that demand from lenders to finance both development and investment opportunities in the PBSA sector remains strong, particularly for quality projects and strong sponsors.
Charlie Bottomley, director in Savills debt advisory team, said: “All lenders, including banks, insurance companies and debt funds, are showing a considerable appetite for the sector, as they recognise its resilience and strong rental growth performance.
“Interestingly, the increase in base rates has created a convergence of pricing between bank and nonbank lenders, particularly for development finance. For a marginal increase in all-in debt costs, non-bank lenders are offering a meaningful increase in leverage, which typically results in a positive impact on equity internal rate of return.”
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