Student accommodation rising to top of class for asset selectors

Artificial intelligence is threatening many entry-level roles and fuelling scepticism around the return on investment for university degrees. But purpose-built student accommodation (PBSA) continues to attract capital, supported by rising enrolments and perceived long-term value of higher education infrastructure.

For investors and institutions, student housing is increasingly viewed as a strategic asset, not just for delivering housing, but enabling a more flexible, digital and globally mobile model of education.

“The question of whether universities adequately prepare students for the future has been asked for decades,” says Maria Spies, chief innovation officer at QS, a global higher education data provider. “But the context today is new. I don’t think the world fully appreciates yet just how deeply and pervasively AI is going to change everything across the board.”

Despite uncertainty, demand for UK university places remains strong. Applications are up year-on-year, with a sharp rise in international interest — particularly from Chinese students — helping to offset Brexit-related declines in European enrolments. The UK’s reputation for academic excellence, English-language instruction, relative safety and comparatively supportive immigration policies remain compelling draws.

“The UK is a service economy; people need qualifications,” says Jessica Hardman, chief executive of Aboria Capital. “Everyone, from nurses to financiers, needs at least an undergraduate degree.”

Understanding AI

AI is redesigning not only the labour market but the way students choose where and how to study. They are looking for universities that understand AI, not just how to use it, but how to teach with it and prepare students for the jobs of the future. Most institutions are still struggling to adapt, according to QS.

A recent survey by the British Standards Institution of more than 850 business leaders across eight countries found 39 per cent had already cut entry-level roles due to AI, with 43 per cent expecting more reductions within a year.

But fears of a ‘graduate jobpocalypse’ are tempered by research from Yale University’s Budget Lab and the Brookings Institution, which found little evidence that generative AI tools, like ChatGPT, have caused major employment impact. Analysis from the FT shows graduate unemployment may reflect a broader slowdown, with unemployment rising faster among non-graduates.

Still, the debate is gaining traction in Silicon Valley. LinkedIn CEO Ryan Roslansky recently argued that the future favours adaptability and AI skills over prestigious degrees, while Meta CEO Mark Zuckerberg has questioned whether universities still prepare students for today’s job market amid rising student debt.

For many in higher education, the value of a degree goes beyond employability. “It’s not just about jobs,” says QS’s Ms Spies. “Universities prepare citizens of the future — people who can lead and think critically.” While curricula must adapt to include more practical, tool-based skills, the core mission of universities remains to foster critical thinking, ethical judgement and problem-solving.

Ethical implications

“The responsible approach to AI — understanding ethical implications and making decisions about them — that’s being addressed in higher education,” she argues. “Would you rather hire someone who graduates with critical thinking, creativity, teamwork, perseverance and problem-solving skills, or someone who simply knows the latest tools but lacks the rest?” she asks.

The evolving job market is driving changes in higher education. Governments and institutions are placing greater emphasis on degree apprenticeships, work-integrated learning, and hybrid models. Ms Spies also sees a growing role for institute-style technical education alongside traditional universities.

Rather than a decline in demand, she anticipates a shift toward more agile, blended approaches, with deeper collaboration between universities, industry and technology companies to prepare students for the future of work. “It has to be critical thinking and problem-solving for the 21st century, not the 19th,” she adds. “We’re starting to see change, but it’s hard to move a big ship fast.”

With higher education transforming, investors are betting on the infrastructure that supports it. Aboria Capital, the investment advisory arm of the Downing platform, was launched in 2024 to focus on long-term income from UK purpose-built student accommodation (PBSA). The Downing family, veteran developers of student housing with more than £3.5bn ($4.7bn) in gross development value, has shifted its focus from development and sale to long-term ownership.

“They saw the potential for student housing to generate long-term, reliable, inflation-beating income, not just for their own family, but for like-minded investors,” explains Aboria’s Ms Hardman, who secured the top job after two decades managing institutional portfolios at Deutsche Bank and DWS.

She believes the sector’s value lies in its operations as much as its assets. “Traditional asset managers often outsource operations and development. But student accommodation is highly operational. Value comes from leasing, rent-setting and platform efficiency, not just capital markets.”

Aboria’s vertically integrated model allows it to respond quickly to market shifts. “It lets us use data more intelligently, make faster decisions and align with investor goals,” claims Ms Hardman.

Hybrid models

Targeting the UK’s mid-market with a “five-star product at a four-star price”, Aboria serves both students and recent graduates. In cities like Manchester, where 70 per cent stay post-graduation, some PBSA is being repurposed for co-living spaces aimed at young professionals. “Graduates want safe, central, all-inclusive housing with a sense of community,” says Ms Hardman. 

That sense of community looks different as they move through life. “Students want Halloween parties and get-to-know-your-neighbour nights. Professionals want TED-style talks and partnerships with financial institutions.”

The rise of hybrid models and the digitalisation of learning are changing what students need from their living spaces.

“Digital is the backbone of a university experience now,” says QS’s Ms Spies. “Whether fully on campus, hybrid or online, institutions must rethink the value of campus life. It’s about people being physically together. I think it will become much more premium and in demand going forward.”

She sees student accommodation playing a central role in that shift — not as static housing, but as a flexible, multipurpose asset. “Student accommodation is a precious resource. If managed well, a single room could serve an undergraduate, a hybrid short-course student, and an executive learner all in the same year. That flexibility adds real value.”

International education is also becoming more fluid. Ms Spies highlights the rise of transnational education partnerships and multi-campus degrees, with students rotating between locations in models like “two-by-two” or “one-and-three” — for example, spending a year in the UK, two years at a partner university abroad, and returning for a final semester to earn a dual-branded degree.

“The old model of a student living in one place for three years is just one version. Institutions need to support a more mobile student population, including short-term intensives, hybrid residencies and work placements.”

Strategic assets

In this context, she says, accommodation becomes a “strategic asset”, not just a place to sleep, but a platform for internationalisation, innovation and flexible education delivery. “It’s really important for universities to understand what their strategic assets are and figure out creative ways of using them.”

Data and technology are playing a growing role in helping housing providers adapt to more fluid and flexible patterns of demand.

Aboria uses data analytics and AI to anticipate market trends, optimise operations, and enhance the resident experience. AI-powered predictive analytics also enable more accurate forecasting of occupancy and student preferences, supporting better planning and resource allocation.

“AI is already a strategic advantage in PBSA,” says Ms Hardman. “It helps us anticipate demand, refine operations, and even enhance community engagement.”

A multilingual chatbot developed in-house has cut booking times from two weeks to under five days, accelerating lettings and revenue generation.

Greener living

Smart building technologies — from intelligent heating and lighting to predictive maintenance and enhanced security –— are also improving comfort, safety and sustainability. Where viable, buildings incorporate solar panels and new developments use heat pumps; older sites are being retrofitted. Sensors in every room track heat, humidity, light and noise to optimise energy use.

“We spend a lot of time educating students on being responsible residents. In fact, in recent years, students have increasingly pushed for us to be part of that process,” says Ms Hardman.

While resilient, the sector faces rising costs and regulatory challenges. In the UK, stricter planning regulations introduced after the 2017 Grenfell Tower fire have slowed approvals. The Ukraine war has driven up construction costs.

“It takes a long time to get sites and planning in the UK. There’s less new supply, which pushes rents up and increases competition,” she says, adding that Aboria is also refurbishing older assets to drive value.

The firm is raising £500m to invest in a £1.4bn pipeline, including one operational property, seven development sites, and two income-generating portfolios — largely in cities hosting Russell Group universities, the UK’s leading research-intensive institutions. Minimum ticket size is £10m.

“Family offices in particular are interested because it’s diversification into a resilient, mature sector. We want fewer, larger partners,” says Ms Hardman. Target returns range from 15-20 per cent over five years, depending on strategy.

Purpose-built student accommodation returned 9.8 per cent in the year to September 2024, outperforming wider commercial property, according to US real estate firm CBRE. Over 12 years, annualised returns averaged 10.8 per cent.

Still, some investors are cautious. A senior investment executive at a London-based multi-family office notes that smaller unit sizes limit future repurposing if university demand weakens. He also highlights reliance on international students — a significant but volatile source of demand, as numbers can shift sharply with geopolitical or economic changes.

Aboria’s Ms Hardman remains confident: “Student housing has always evolved with how young people live and learn. As education transforms through AI and sustainability, so too will we.”