Institutional investors zero in on Australia’s student accommodation sector after a large development cycle that will see around 100,000 beds in the sector by 2022, reveals fresh research from JLL.
According to JLL’s latest Australian Student Accommodation Investment Review & Outlook, our six largest student markets will boast 86,000 beds by the second semester of 2019– an increase of 12,000 beds in just one year.
Melbourne has 26,668 beds in both commercial and university-owned accommodation, followed by Sydney (19,441), Brisbane (16,258), Canberra (9,389), Adelaide (7,107) and Perth (6,880).
Melbourne remains the most attractive destination for overseas students, with Victoria absorbing 34.7 per cent of the national market. Sydney ranks second.
Melbourne will account for more than half the expected supply of purpose-built student accommodation, or PBSA, between 2020 and 2022.
Noral Wild, JLL’s head of alternative investments in Australia, says there is a compelling investment case in the student accommodation sector.
“The cost of living and global rankings are key drivers of demand, together with a strong and stable economy,” she says.
Education is Australia’s third largest export industry, generating $33.0 billion in fees, goods and services in 2018.
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.
China is the top source of 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.
Wild notes an emerging “institutional” appetite for prime operational assets, including “large portfolio opportunities that allow new entrants in the market to gain immediate scale”.
“We have already seen global capital groups such as APG, Bouwinvest, Goldman Sachs and GIC partner with major developers or operators in the sector and expect the global appetite for Australian PBSA to continue to grow,” she says.
While the supply pipeline has “caused some concern of potential oversupply in some locations in the short term,” Wilde says the market penetration of student accommodation in most Australian cities remains lower than global counterparts, and there is “considerable scope” to grow market share.
There are three phases of the capital investment cycle – development, operational and stabilised –for investors to consider when assessing the student accommodation sector, Wild adds.
“As the prime Australian PBSA market moves from the development cycle into the operational phase, the capital shifts from opportunistic to value-add and core.”
JLL expects to see yield compression over the next three-to-five years, stabilising occupancy before core capital enters the market.