Capital is flooding back into the student housing sector, with investors pouring $1.8 billion into purpose-built student accommodation (PBSA) this year - a 15-fold increase on 2024 investment volumes.
The dramatic increase in activity, detailed in Knight Frank’s Australia PBSA Update Q2 2025, comes amid booming international student numbers, chronic undersupply, and escalating pressure on the broader rental market.
Analysts at Knight Frank say investors are now eyeing PBSA as a high-yield, resilient investment class with counter-cyclical appeal and long-term growth potential.
Chronic Undersupply Fuels Investor Confidence
Knight Frank reports that 6,912 beds are currently under construction, with 2,772 due for completion in 2025 and an additional 5,832 expected in 2026.
While the pipeline is growing, it remains insufficient to meet rising demand.
Government data shows 1,095,298 international student enrolments in the year to December 2024 - well above pre-pandemic levels.
This imbalance is fuelling steep rental growth in student accommodation across major cities.
Since 2018, average studio apartment rents in PBSA developments have surged by 50% in Sydney, 38% in Melbourne, 36% in Adelaide, and 28% in Brisbane.
“The headwinds that have held back PBSA development activity are gradually lifting as construction cost inflation moderates and interest rates begin to fall,” Knight Frank Chief Economist Ben Burston said.
“On top of this, investors and developers continue to actively pursue PBSA and other living sectors given widespread undersupply, strong rental performance, and substantial opportunity to grow scale as opposed to traditional sectors where total stock will not expand as quickly.”
Big Money Flows Back into the Sector
Knight Frank’s Head of Alternatives, Tim Holtsbaum, said last year’s policy uncertainty and economic headwinds briefly dampened investment, but the rebound has been swift.
“The country’s rising prominence as a strong destination for higher education is driven by the increasing strength of its universities, strategic proximity to Asia, and high quality of student lifestyle,” he said.
“As one of the ‘Big Four’ anglophone university markets, it hasn’t been immune to political tensions. Nonetheless, recent proposals to limit international student numbers have not materialised, and there is now growing recognition that the development of Purpose-Built Student Accommodation (PBSA) is essential in alleviating pressure on the wider rental market.”
Outlook Bright as Policy Signals Turn Positive
Looking ahead, the report has flagged five key trends that will shape the market in the coming months:
1: High Barriers to Entry: A limited pool of operational assets and strong competition makes it difficult for new players to gain a foothold.
2: Appetite for Safe Assets: Investors are favouring university-leased PBSA for its long-term stability.
3: Joint Ventures Rising: Cash-strapped universities are turning to the private sector, with more public-private partnerships on the table.
4: Repositioning and Repurposing: Developers are converting older buildings, often outside traditional student zones.
5: Exchange Rate Sensitivity: Currency shifts are affecting where international students choose to study.
Mr Holtsbaum said clearer political signals and monetary policy shifts are likely to drive further growth.
“We expect additional anticipated rate cuts and the prospect of greater political certainty in Australia in the second half of 2025 will lead to greater activity as the year progresses,” he said.
