UK property investors are pulling back sharply from student housing, according to research from Handelsbanken.
The bank’s fourth annual Property Investor Report – based on a survey of 200 larger portfolio investors and landlords – shows a decisive shift in sentiment towards the asset class.
Only 34.5% of investors now plan to grow their exposure to student HMOs, down from 49.5% last year and 79% in 2023.
At the same time, a record 65% plan to either withdraw from the sector entirely or reduce their exposure at some level; highlighting an accelerating exodus as rising costs and regulation erode confidence in a once favoured asset class.
The research comes at a time when university cities, such as Glasgow and Edinburgh, have seen a surge in new-build student accommodation – and could see a significant scaling back.
It notes that demand from undergraduates remains strong and is likely to increase, as thousands of students that once would have headed to the US now plan to study in Britain instead.
However, the economics of student housing investing have become more challenging, it says. Rising interest rates since their historic lows between 2009 and 2022, together with tighter regulation, have pushed smaller landlords to sell. This has exacerbated the supply gap at a time when new PBSA development is still recovering from pandemic era delays.
Though 37.5% of investors say they will expand their PBSA portfolios, 24% will withdraw entirely and a further 26.5% will reduce their exposure.
Non?student HMOs fare worse still: only 26.5?% plan growth, compared with 36.5?% exiting completely. Across all residential sub?sectors, including park homes, investors are reallocating capital towards core houses and flats, where 54?% see safer, more predictable returns.
The researchers say that for developers and institutional investors willing to take a selective approach, the current environment still offers plenty of opportunity.
“Those who can negotiate competitive land and construction costs, target the right locations and structure debt to weather rate volatility will be best placed to capture the sector’s inevitable rebound,” says the report.
James?Sproule, UK chief economist at Handelsbanken commented: “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.”
The Handelsbanken Property Investor Report 2025 paints a picture of a sector in transition. As landlords navigate regulatory changes, inflationary pressures, and evolving tenant expectations, those who adapt, by diversifying portfolios and aligning with market signals, are best positioned to thrive.
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