Home Property Australia Student accommodation supply issues continue

Student accommodation supply issues continue

  • December 20, 2023
  • by Property Australia
Savills Director of Operational Capital Markets Paul Savitz

Savills’ latest Australian Student Accommodation 2023 Report has revealed that demand for purpose-built student accommodation (PBSA) remains at its most feverish point and tipped to further increase, continuing to outstrip supply amid low vacancy and a mounting number of offshore student arrivals.

The report highlighted an easing pipeline of PBSA development forecast to be delivered over the next three years, with the total number of new student beds dropping by more than 50 per cent compared to the last three years.

It was also revealed that investors are redirecting their attention from the inner-city suburbs of Sydney and Melbourne to areas like Macquarie Park, a northern suburb of Sydney.

“We anticipate that investors will continue to back student accommodation due to the capacity for rents to keep pace with inflation,” said Paul Savitz, Savills’ Director of Operational Capital Markets.

“An all-too-familiar imbalance of demand over supply is continuing to fuel strong annual rental growth in student accommodation over the short term, which we anticipate could, in some markets, still be double-digit in 2025.”

Savills forecasts that just 7,770 new PBSA beds will become operational in Australia’s capital cities by 2027 – a 52 per cent decline compared with the 2020-2023 period, and a 64 per cent fall from 2018-2020 levels. 

The report forecasts that PBSA rental growth in Sydney is expected to outperform other cities over the next five years, benefitting from highly ranked universities, an influx of lifestyle students and a historic undersupply of accommodation.

Rents in Brisbane have increased the most over the past two years, rising by 50 per cent, according to the Savills report.

Rents are likely to slow over the next five years as new supply enters the market from 2026, the report said, and affordability ceilings are reached, although this is still significantly above historic rental trends.

Savills’ found that international student arrivals to Australia are increasing at a rapid rate.

In the year to September 2023, there were 618,350 international student arrivals to Australia, an 88 per cent increase from the previous year. Savills said the international student arrivals forecast will surpass 2019 levels in 2024 and grow to close to one million by the end of the 2025 academic year.

“This boost in international student arrivals comes after Australian universities advised a return to in-person course delivery this year, with the Chinese government also requesting its students to return to destination universities. This catalysed a rapid bounce-back in demand for higher education in Australia, which has caught many universities by surprise,” Mr Savitz said.

Sydney and Melbourne have taken center stage in the supply efforts of the past three years, mainly due to their proximity to Group of Eight universities, the report noted. 

Nearly 100 per cent of the upcoming beds set to be operational in 2024 and 2025 are concentrated in Sydney and Melbourne.

“Land values in amenity-rich locations close to universities and public transport have maintained their value, impacting on the feasibility of schemes alongside build cost inflation and planning delays,” Mr Savitz said.