Student flats ‘shining light’ in Scotland’s property market but uni funding crisis casts a shadow

Purpose-built student accommodation (PBSA) schemes, which have been springing up across Scottish university towns and cities, are highlighted in the latest investor research on the living sector, undertaken by property advisory firm Lismore Real Estate Advisors.

Chris Thornton, associate director at Lismore, said: “The PBSA sector continues to be one of the shining lights, performing strongly, driven by resilient demand and stable capital values, particularly in cities with a Russell Group university. Despite concerns over international student numbers, institutional investors, private equity firms and specialist platforms remain highly engaged in this sector.”

Murdo Mcilhagger, managing director of MYS Student Living, insisted that the PBSA market was performing well, supported by “macro tailwinds” such as growing international student demand and policy shifts.

“While transaction volumes remain below average, activity is picking up as debt costs ease,” he added.

“Investors must focus on customer demand, location quality and operational efficiencies, particularly as sustainability becomes a key factor in both revenue generation and cost management. However, challenges persist, including a lack of sellers, thin interest in secondary assets and fire safety remediation impacting liquidity.”

The resilience in the student accommodation market comes amid a backdrop of funding concerns across the higher education sector. Scottish ministers were recently urged to convene a summit to reconsider the funding model for universities amid alarming reports about budget deficits and financial trouble at some of this country’s leading institutions. This week, it emerged that the number of jobs that are expected to be lost at the University of Dundee as it grapples with a financial crisis has risen to 700.

According to the Lismore research, a majority (72 per cent) of investors are considering Scotland’s “living sector” in 2025, with interest highest among investment managers (86 per cent of them) compared to fund investors (50 per cent). The end of rent caps from this month could provide greater stability, it noted, supporting growth in a market already facing a housing shortage, particularly in Edinburgh and Glasgow.

The study found that portfolio diversification (26.8 per cent) is the primary driver of investment in the living sector, followed by minimal void risk (24.7 per cent) and liquidity (22.3 per cent), highlighting investors’ focus on stability and resilience.

Sustainability (28.3 per cent) remains a top priority for PBSA investors, which Lismore said reflected the sector’s alignment with environmental, social and governance (ESG) standards, while demand is also being driven by unit mix considerations (24.1 per cent) and reliance on overseas students (23 per cent), particularly in prime locations near Russell Group universities.

Elsewhere in the market, Lismore’s quarterly review statistics show that it has been a relatively slow start to the year, with cautious investor sentiment, limited stock availability and ongoing economic uncertainty dampening activity.

Transaction volumes in the first quarter of 2025 totalled some £202 million, with the largest transaction being Realty’s £66.2m acquisition of Abbotsinch Retail Park in Paisley (as part of a portfolio) from Ashby Capital.

Other notable transactions included L&G’s purchase from Glencairn Properties of the PBSA development at Lower Gilmore Place, Edinburgh for £35m, Cervidea’s acquisition of 98 Buchanan Street/31Royal Exchange Square in Glasgow for £13.8m and Remake Asset Management’s acquisition of the Nike Store at 18-20 Buchanan Street, Glasgow for almost £11.9m.

Thornton said: “The commercial property market remains cautious amid a mixed economic backdrop and geopolitical uncertainty, with a lack of quality stock delaying significant activity until [the second quarter]. Private capital continues to target prime city assets, while selective office yields attract opportunistic buyers.

“As spring arrives, signs of renewed momentum are emerging, particularly in the most liquid sectors - industrial, retail warehousing and living.”

The acquisition of the canal-side Lower Gilmore Place PBSA was announced in January. Located in the city’s Fountainbridge area, the scheme will eventually provide more than 150 beds.

It was acquired off market by Legal & General’s Managed Fund from Glencairn Properties. Property consultancy Knight Frank acted for the buyer, while Ryden represented the selling party.

Euan Kelly, capital markets partner at Knight Frank Edinburgh, said: “The deal represented the culmination of a lot of hard work. The sale of Lower Gilmore Place underlines the strength and depth of investor demand for PBSA assets in Edinburgh. The supply-demand dynamic in the city is still highly favourable to developers and this scheme is in a prime location between the University of Edinburgh, Heriot-Watt and Napier.

“More widely, transactions like this point to the level of investor interest we are seeing across Russell Group university cities, given the resilience of demand from students for places at these institutions. As such, we expect more PBSA deals to follow during 2025.”

Despite criticism over the proliferation of student accommodation schemes in both Edinburgh and Glasgow, and setbacks for some proposals, several major projects have been given the green light. Last August, plans for The Ard, a 374-foot, 36-storey tower block that will house hundreds of students in the Charing Cross area of Glasgow, were given the go ahead.

More recently, in February, it emerged that a landmark 1970s Edinburgh office building that is home to a charity supporting creative businesses could become new homes and student flats after being put on the market.

Caledonian Trust appointed Scarlett Land and Development to market St Margaret’s House, 151 London Road, which has detailed planning consent that allows for the development of a mixed-use scheme, comprising PBSA and residential units.

Two Scottish cities set for hundreds more student flats amid 'significant' supply shortage