Student Accommodation Supply Must Increase

Australia’s student accommodation sector has continued to boom with a pipeline of new product expected to provide around 100,000 beds by 2022. 

The sector, which is "playing catch up" to support the growing mobility of both domestic and international students, will see approximately 86,000 beds across Australia's six largest student markets come online this year, an increase of 12,000 beds in one year. 

While a faltering housing market has left many off-the-plan developers in a bind as they battle to get projects off the ground with fewer pre-sales, alternative property developers with a focus on aged care and student accommodation are filling some of the demand for large investor-grade sites.

According to new research from JLL, demand drivers remain strong in the sector as Australian cities become more affordable globally and Australian universities improve their global rankings.

International student enrolments have increased by 73 per cent over the last five years and Australia is the world’s third most popular destination for education accounting for 7 per cent of the world’s 5 million foreign students.

A key factor driving the growth in overseas student enrolments in Australia is the easing cost of living in major Australian cities compared to other markets. 

Yet, the rapid development phase of Australia's student accommodation sector might not be enough to soak up increased demand from both domestic and international students on our shores.

Student Accommodation Demand High
▲ According to the Department of Foreign Affairs and Trade, Australia’s international education market contributed $33 billion to the economy in 2018, an increase of 15.5 per cent over 2017.

JLL head of alternative investments Noral Wild said the supply pipeline has caused some concern of potential oversupply in some locations in the short term.

“Demand for Purpose Built Student Accommodation in Australia is still expected to grow and be driven by the low penetration rates compared to global markets and a number of demand drivers including economic conditions and increasing student numbers.”

Almost 10,000 beds have opened for the 2019 academic year, with over approximately 2,500 beds expected to open for the second semester. By December 2022, the number of Purpose Built Student Accommodation beds is expected to reach over 100,000.

Melbourne continues to be the most attractive destination for overseas students, with Victoria attracting 34.7 per cent of the national market in the latest available enrolment figures from 2017. Sydney ranks second.

Between 2020 and 2022, it is expected Melbourne will account for over 50 per cent of the expected supply.

“There is an institutional appetite emerging for prime operational assets including large portfolio opportunities that allow new entrants in the market to gain immediate scale,” Wild said.

“We have already seen global capital groups such as APG, Bouwinvest, Goldman Sachs and GIC partner with major operators in the sector and expect the global appetite for Australian Purpose Built Student Accommodation to continue to grow.”

 Student Accommodation Supply Low
▲ China remains the top source of Australian enrolments, accounting for 38.3 per cent of students in 2018. India was the second source country, while strong recent growth has seen Nepal rise to third place. 

According to Savills, the sluggish rate of new developments coming online in Australia's student accommodation sector will still not be enough to soak up increased demand.

The rapid increase of international student enrolments at Australian universities will continue to put pressure on the demand for beds.

Despite potentially 7,000 new beds to be added to stock between 2020 and 2022, Melbourne is expected to have the biggest deficit by 2022, with 5.2 international students per bed. 

There is currently an estimated 296,000 full-time students enrolled in universities across Melbourne.

Sydney, with another 1,300 beds to be delivered by 2022, will have 4.7 international students for every purpose-built student bed.

Overseas investors are continuing to target growth opportunities in the undersupplied market and with interest coming from European pension funds, Asian capital as well as Middle Eastern sovereign wealth funds.

JLL expects to see yield compression over the next three-to-five years, stabilising occupancy before core capital enters the market.

“As the prime Australian Purpose Built Student Accommodation market moves from the development cycle into the operational phase, the capital shifts from opportunistic to value-add and core,” Wild said.

If you’re thinking of investing in Purpose Built Student Accommodation of 100+ Rooms, talk to Hive Student Accommodation on 1300 882 326.

© Hive Student Accomodation . Website created by Radian Web