The UK’s purpose-built student accommodation sector will reach £2.5bn in 2023, reflecting a 30% decrease compared to the record-breaking year of 2022.
JLL said that the fall is largely attributed to the wider economic context, with interest rates rising from 1.75% to 5.25% across the past year which has spurred a more cautious investment market.
In its latest investor survey conducted in July, JLL found that investor sentiment for the sector is strong.
The survey said that 41% of investors considered it the most resilient sector, exhibiting an increase from 30% in the January survey.
However, the majority of respondents now anticipate a recovery in the second half of 2024, compared to the initial projection of the second half of 2023.
JLL said the delay in recovery could be attributed to the expectation of lower real estate pricing over the next 12 months in general, although the PBSA sector is well-positioned to limit declines in capital values.
However, it added that the sector’s resilience, growing demand, strong occupancy rates, and potential for rental growth have bolstered investor sentiment for PBSA.
Research has also revealed that whilst yields across all sectors have witnessed a softening from the peak rates of 2022, the living sectors, including PBSA, have demonstrated more resilience than traditional ‘core’ sectors.
Ultimately, JLL said that the determination of pricing lies in the intersection between the seller’s expectations and the buyer’s affordability. It is estimated that yields have shifted by approximately 100 basis points from peak pricing.
JLL head of UK student housing living capital markets Huw Forrest said: “While the economic environment is very challenging, investor sentiment remains positive and the PBSA sector upholds itself as a resilient market. Deals are happening.
“With rental growth forecasted to be 5% or more in the coming years, available stock at sensible pricing and a relatively less competitive buyer pool, now is an opportune time for cash buyers or those who can consider delaying finance to invest.
“We expect a far more competitive pool of buyers next year as the market reacts to what is hopefully the peak of interest rates and the confidence that will bring.”
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