Opportunities in the Student Accommodation Market

Owing to a rapid influx of international students, the tertiary student accommodation market in Australia is under supplied. In addition to local investors and developers, a growing list of offshore funds and real estate investment trusts (REIT’s) are responding to the demand/supply imbalance. Redefine Properties - one of South Africa’s largest REITs with a portfolio worth more than $5 billion is considering a $130 million investment in a student accommodation project in Melbourne. Redefine Properties with its controlling interest in South Africa’s Respublica Student Accommodation, has plans to increase its offshore exposure to represent 25% of their total assets. And recently the globally significant British student accommodation company GSA Group, made its first Australian acquisition.  GSA Group, a private operator with a solid development pipeline including a site near the University of Melbourne, is buying out Campus Estates. GSA Group recently announced its plans to bring 25,000 beds under its management in the next decade and has identified opportunities in Sydney, Melbourne, Brisbane, Adelaide, Canberra and Auckland. Meanwhile Campus Living Villages (CLV), owns, manages and has under development over 40,000 beds at more than 60 properties in Australia, New Zealand, United Kingdom and United States, as at November 2015.  CLV is reported to be reviewing its capital requirements ahead of a possible stock exchange listing of its significant $AU2 Billion portfolio.

Sydney-UniversityQuadrant Building at University of Sydney.  Five Nobel or Crafoord laureates have been affiliated with the university as graduates and faculty.

So what is driving this activity and how significant is the demand/supply imbalance in the Australian tertiary student accommodation market? In a 2015 report into the higher education accommodation market Jones Lang LaSalle (JLL) estimated that the existing Australian tertiary student accommodation supply gap for Sydney was 29,000 beds, Melbourne 69,000 and Brisbane 15,000 (Australian Student Accommodation Market Update JLL 2015).  In other words, across the eastern seaboard, where there is the highest concentration of Australian Universities, there is a shortfall of approximately 115,000 beds for higher education students.

The report notes that Sydney attracts keen interest from student accommodation developers and investors because of a shortage of high quality student accommodation. Sydney’s global recognition as an attractive location to study and live also drives interest. It is notable that Sydney’s development pipeline forecast beyond 2016 tapers off. This pattern reflects the feasibility of student accommodation development when compared to other competing asset classes such as residential.

In Melbourne, the student accommodation development pipeline increased significantly over the past 18 months, spurred on by universities developing on-campus accommodation. However, there remains a shortage of high quality accommodation situated nearby to the University of Melbourne and the Royal Melbourne Institute of Technology (RMIT). In similar fashion to Sydney, the feasibility of student accommodation development is challenged when compared with residential property development.  Nonetheless a solid pipeline of student accommodation appears to be emerging from this year onwards with a number of new schemes proposed towards the CBD.  Inevitably, there are a number of instances where some sites will compete with the significant supply of new and proposed residential apartments.

With regard to Brisbane’s development pipeline, elevated supply and demand, availability of sites and support from local government have all contributed to Brisbane’s surge in student accommodation activity in the past 12 months. Brisbane City Council reduced Council infrastructure charges for eligible student accommodation developments. This was introduced to encourage new developments that provide accommodation for tertiary or higher education students.  It is notable however, that 75% of Brisbane’s pipeline is in pre-lodgement stage. That means it is yet to be determined whether it will receive development approval by the Brisbane City Council. If completed, this period of development will set up Brisbane’s CBD and South Bank as two hubs for student accommodation.

So what is driving this demand/supply imbalance?  It is widely understood that the global market for education services is an expanding phenomenon. As incomes and participation rates in education continue to rise, demand for education services continues to grow. Per capita incomes have increased sharply throughout Asia over the past decade.   With Australia highly regarded as a destination for international students and with its geographic location, there appears to be a distinct advantage over other nation’s ability to compete in this field.

What are the key reasons supporting international students decision to undertake studies at Australian higher education institutions?

For a nation of 24 million people, Australia’s higher education system seems to punch well above its weight. And when it comes to world university rankings, Australia has a proven track record. Across all global ranking systems, criteria and fields of study, Australia ranks highly for quality of education, student satisfaction, and global reputation. In fact, eight of Australia’s universities feature in the top 100 ranked universities in the world in the latest QS ranking (2014-15).

A recent survey conducted by the Department of Education and Training verified the key reasons for choosing Australia as international study destination (factors identified as important or very important by over 90% of higher education student respondents), including:

  • Reputation of chosen qualification (95%);
  • Reputation of chosen institution (94%);
  • Reputation of Australia’s education system (93%);
  • Personal safety (92%); and
  • Quality of research and teaching at chosen institution (91%).

The introduction of a more streamlined visa processing has also been identified as one of the key contributing factors giving rise to Australia’s international student numbers, with the higher education sector as the predominant beneficiary.

However, not all of the increase can be attributed to the visa rule changes. According to the Economist Intelligence Unit Liveability Ranking, 2014, Australia has five cities in the top 30 most liveable cities. This surely counts as another factor supporting international student’s decision to choose Australia as their preferred destination.

The-Melbourne-School-of-Design-at-the-University-of-Melbourne-was-launched-on-11-December-2014-and-opened-for-teaching-on-March-2-2015_-It-is-a-6-star-buildingThe Melbourne School of Design at the University of Melbourne was launched on 11 December 2014 and opened for teaching on 2 March 2015.  It is a 6 star building.

Student mobility also continues to grow and more than half of all cross-border students are now from Asia. Increased mobility means that students from China, Singapore, Japan, Taiwan, Malaysia and others studying in Australia, have cultural engagement opportunities on a scale never before known.

On the basis of the key demand drivers, and the supply shortage, the magnitude of the investment and development opportunities in the Australian student accommodation is significant.  Currently, International students make up more than 19.2% of all higher education enrolments. Notably, Chinese and Indian students account for nearly 50% of overseas students in Australia. This composition in itself has transformed the demand for student housing. As this process accelerates, increasing numbers of international students will select to study at the Universities located in the major metropolitan areas.

It is notable that international education is now Australia’s third largest export industry and is currently valued at $AU19.2 billion a year. In December 2015, The Commonwealth’s Department of Education and Training data showed that there were 640,000 international students in Australia, including approximately 272,000 studying at higher education institutions.  Analysis of the Department’s most recent data indicated that the number of overseas higher education students in Australia is growing by an average annual growth rate of 5.4%.

Students from China contributed 26.7% of all international students in Australia, the highest of any nationality. India and the Vietnam were the next highest, contributing 10.2% and 4.8% respectively. Nationalities in the top ten countries together contributed 65.7% of total international student numbers.

Urbanest Carlton one block from Uni of MelbourneUrbanest Carlton is located on Berkeley Street and one block from the University of Melbourne

Presently, Australia is ranked as the fifth most popular international study destination behind the United States, United Kingdom, Germany and France. Key reasons supporting the Australian student experience include: student visa policy settings, the high quality of regulation for educational services and the quality of the living environment.

Australia has one of the most internationalised tertiary sectors on the planet. International students predominantly require rental accommodation which is provided by a mix of private residences, private housing providers and university colleges. Meanwhile, domestic tertiary enrolments are expected to grow steadily and with this, accommodation for local students will also increase.

Affordable student housing product delivered within proximity to university campuses will need to be delivered in a manner consistent with the changing requirements of future students. So too will that which accommodates those with a higher willingness to pay threshold. Importantly, as in all property markets there will continue to be innovation and new models. For student accommodation fuelled by rising incomes and increased participation rates this may mean more interesting and affordable concepts. And while technology may reduce the need for higher education facility floorspace, more precincts committed to social and communal areas will need to be considered as part of the mix for student accommodation, to foster a more cultural engagement opportunity.

Part of the transformation and innovation visible in this market is in the form of e-commerce solutions. Bedssi was recently launched with its model as an Airbnb-style accommodation portal aimed at students. Bedssi is trying to find a more affordable housing type for student, as the founder of the company recently stated; a solution is needed “that tries to service everybody”. Meanwhile, London-based Student.com has incorporated into its property listing sites available in Sydney, Melbourne and Canberra. There may be a supply shortage, however there is no shortage of ideas and opportunities in the Australian student accommodation market.

Mark Courtney General Manager – Queensland courtney@macroplan.com.au

Mark Courtney is MacroPlan’s General Manager – Queensland.  Mark’s is an accomplished property professional whose experience uniquely positions him to provide leadership in property research and consultancy. He has considerable experience in the analysis and development of Australia’s industrial property sector, as well as extensive market trend analysis, feasibility assessment and land demand and supply modelling expertise.

About MacroPlan: MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Mark Courtney, General Manager – Queensland, today to discuss your property research requirements.