Student housing is back on track
With students travelling abroad again, investors are following
The number of students travelling abroad to study at universities is rising again after a hiatus during the pandemic.
Australia, one of the world’s most popular destinations for international study, saw its biggest annual increase in student visa holders ever in 2022, climbing 44% to 456,970, according to the department of education.
In the U.S., international student enrolments in the 2021-2022 academic year were up 80% on pre-pandemic levels.
As foreign student numbers rise worldwide, real estate investors are taking note of their need for housing.
Investment in purpose built-student accommodation was US$17.7 billion globally in 2022 – the second highest investment into the sector for 15 years, according to JLL data.
“The pandemic was a black swan event for the student accommodation sector, but it’s back on investors’ radars as student numbers climb,” says Noral Wild, JLL’s head of alternative investments in Australia. “With appetite for scale investments by institutional capital and the potential for economies of scale across operating platforms, consolidation is a key theme.”
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Not enough beds
Wild notes the return of students is spurring a supply-demand imbalance, with occupancy rates rising amid generally low vacancy levels.
In the U.K., StuRents, the country’s largest student rental service, predicts a shortfall of around 450,000 student beds by 2025.
In Australia, colleges are anecdotally receiving up to seven applications per bed, reports JLL’s Australian Student Accommodation Investment Update 2022. The recent visa application data shows significant demand coming from emerging economies in Asia, including Indonesia and Thailand, as well as South America.
Amid the shortfall of space, rents for students are rising. Average rents in Canada and Australia increased by 8% last year, while in the U.K., they increased 4.4%. For the rest of Europe, rents rose 3.1%, according to BONARD’s student housing annual report 2022.
“Although greater depth of stock and liquidity can be found in larger Northern Hemisphere markets, it is likely that offshore groups which are already comfortable investing in the sector abroad will increasingly consider the Australian market due to a more attractive yield profile and the opportunity to leverage off the arguable under-supply of appropriate student housing in Australia,” says Louise Burke, JLL research director.
A penchant for alternatives
Student accommodation has benefited from rising allocations to private investments globally.
The recent SS&C Intralinks 2023 LP Survey found that 72% of surveyed limited partners plan to increase their allocation to private investments such as venture capital, private equity, real estate, infrastructure, private debt and other unlisted opportunities.
The sector is also being targeted as part of portfolio diversification strategies. According to JLL research, the share of global investment into the living sectors, which includes student accommodation, has increased from 15% to 32% between 2010 and 2022.
“Private investments typically present heightened value prospects given extra barriers to entry as opposed to public markets. While real estate as an entire asset class is likely to benefit, alternative real estate is likely to be a significant recipient of capital flows with many opportunities also falling within private equity mandates,” says Burke.
Demand outweighs cost
In Australia, strong market drivers are giving investors the confidence to try new locations. Brookfield acquired its first development site in Melbourne to seed a targeted A$500 million ($360 million) portfolio. Ivanhoe Cambridge has made a A$1 billion capital commitment to Scape’s Core Fund.
Meanwhile, seasoned investors and operators looking for scale are acquiring existing assets, portfolios and platforms, and procuring sites for development.
GIC purchased 49.9% in the Wee Hur Master trust for A$568 million ($412 million). Australian investment group Cedar Pacific, which is focused in the living sectors, purchased a student housing block in Adelaide for A$50 million.
The strength in asset performance is balancing out the impact of rising financing costs, according to JLL’s alternatives investment review and outlook 2023. However, heightened construction costs will ensure that student accommodation that is currently operational will continue to be competitively priced compared to new buildings.
“Repositioning opportunities across older student housing or other living assets are likely to become increasingly attractive to operators to address the growing mid-market accommodation demand,” says JLL’s Wild.
Contact Noral Wildhead of alternative investments, Australia
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