Student Accommodation Grows In Its Investor Appeal
Student Accommodation is fast becoming a real growth opportunity for both domestic and offshore investors.
Education is currently Australia’s second largest export after mining (just behind iron ore and coal) generating a record $20.3 billion in export income for Australia in 2015/16 – according to the Australian Bureau of Statistics (ABS) – this was an increase of eight per cent from the previous 12 months.
With this growth comes an increased demand for student accommodation – particularly Purpose Built Student Accommodation (PBSA) designed to appeal to international students.
Daniel Erez, Managing Director of real estate investment management group, Newground Capital, discusses the investment appeal of the student accommodation sector.
Student Accommodation Demand
“The opportunities we are seeing coincides with an overall increase in the global mobility of students – and Australia remains a popular destination particularly for students coming from China, India, Korea and other Southeast Asian countries.
“In the US and the UK the student accommodation sector is already quite developed and global appetite is growing.
“As Australia starts to catch up with demand it presents opportunities for investors to diversify their portfolios beyond the established markets in the States and United Kingdom.”
What exactly does Purpose Built Student Accommodation look like?
“PBSA is designed for students who cannot access or don’t want to live in on-campus accommodation, but want an alternative to finding accommodation in the private residential rental market.
“Like on-campus accommodation PBSA usually offers an all-inclusive set-up and management. Often the rent includes utilities, security and varying tenancy lengths. Ideally the site is close to the education facility and has good access to transport links.
“The accommodation can vary from self-contained units to rooms with communal kitchen and living facilities – making it appealing to a wide range of students.”
Purpose Built Student Accommodation Undersupply
Despite the increased growth in the student accommodation sector there isn’t enough PBSA beds to meet demand in Australia.
“While there have been some media reports to the contrary there is no doubt that the student accommodation sector is significantly undersupplied.
“There are 230,400 full time Higher Education international students studying in Australia, but only 81,939 PBSA bed spaces.”
Recent research by JLL/ Savills & Knight Frank shows that the sector is undersupplied to the tune of more than 290,525 rooms nationally.
“And by the end of 2020, the national undersupply of PBSA bed spaces is projected to increase by 39% to 404,700.”
Erez says Brisbane is expected to be particularly hard hit with undersupply forecasted to rise from 38,689 to 42,460.
“This sector presents real growth opportunities for domestic and offshore investors, with industry experts describing the sector’s occupier demand as less cyclical, less volatile, and overall less uncertain, than any other property asset classes.”
What about Residential Apartments?
With an undersupply in the PBSA market in, can’t the abundance of ready-to-rent apartments fill the gap? The simple answer is no. Often students are coming from afar - overseas, interstate or from the country - and therefore don’t have the necessary rental history, furniture or living essentials required to rent a vacant apartment.
Safety and a sense of community are two other factors that students desire when studying away from home.
On top of this, they need to be close to their education facility or be able to access public transport easily and cost effectively. While many new apartments are appealing to the broader market, for students they just don’t meet all the right requirements to be a viable option.
Student Accommodation Development Challenges
“There are a number of key barriers to entry in the Australian market, including the availability of suitable land and the viability of student accommodation development against other land uses. Both of which is restricting the five year development pipeline.
“Developers also need to be fully coherent of any planning standards and permissible uses for sites they have in mind, as these can vary depending on location.
“Despite these challenges though, Newground Capital sees a very positive future for student accommodation investment in Australia.”