"Like any investment class, property has advantages and constraints, and any investor must be aware of these"
- James Sproule - Handelsbanken
Investor sentiment towards UK student housing is weakening, with a growing share planning to withdraw from the market, according to new research from Handelsbanken. The bank’s fourth annual Property Investor Report, based on a survey of 200 larger portfolio investors and landlords, indicates a notable retreat from both student HMOs and purpose-built student accommodation (PBSA).
The findings show that 34 % of investors intend to exit student housing and HMO holdings entirely in 2025, up from 22 % a year earlier, while a further 20 % plan to significantly reduce exposure. Only 34.5 % expect to expand their student HMO portfolios, compared with 49.5 % last year and 79 % in 2023. In total, 65 % of respondents plan some form of reduction in their involvement.
PBSA shows a similar pattern. While 37.5 % of investors intend to grow their PBSA exposure, nearly one-quarter (24 %) plan to withdraw fully, and a further 26.5 % will scale back holdings. Non-student HMOs face an even weaker appetite, with just 26.5 % planning expansion and 36.5 % aiming to exit entirely.
The shift comes despite persistent demand from undergraduates, which is expected to rise further as more international students, including those who might previously have studied in the US, choose UK institutions. However, rising interest rates, higher operating costs, and tighter regulations have eroded returns, prompting smaller landlords to sell. Development of new PBSA is also still recovering from delays during the pandemic.
Across all residential sub-sectors, including park homes, investors are directing more capital towards traditional houses and flats, where 54 % believe returns are more predictable.
The report notes that developers and institutional investors who take a selective approach may still find opportunities. Focusing on competitive land acquisition, cost-effective construction, favourable locations, and debt structures resilient to interest rate fluctuations could position them for long-term gains when the sector rebounds.
Looking ahead, the research suggests that with student numbers outpacing purpose-built supply, cautious but prepared investors may be best placed to act. Strategies such as forming partnerships with universities, adopting flexible designs to suit both domestic and international students, and monitoring regulatory developments could be key to success.
“Like any investment class, property has advantages and constraints, and any investor must be aware of these. Property transactions are invariably more expensive and take longer than investing in stocks and shares, meaning they’re attractive to investors looking for longer-term returns,” said James Sproule, UK Chief Economist at Handelsbanken.
