The Australian student accommodation market is transitioning, on the back of a significant increase in the development of purpose-built student accommodation (PBSA) across Australia’s capital cities. This wave of new accommodation is now reaching completion, with a significant increase in the supply of PBSA throughout the next two years. In New Zealand, the demand for more institutional PBSA appears relatively strong, but the feasibility of delivering new accommodation is challenging given rental prices which are low but have been increasing and current build costs which are relatively high.
Private sector vs university
The sector is entering a new phase, where there will be more beds owned and operated by the private sector than universities. The last Australia-wide survey of student accommodation carried out by University Colleges Australia (UCA), in association with (at the time) ACCUHO, as at November 2004, indicated that there were 74,482 beds provided across the country. Of that, 44,260 places (representing 59 percent) were provided by universities and colleges or located on-campus. The remaining 30,222 (41 percent) were provided by commercial entities, churches and charitable trusts.
A number of the private sector consortia that have been active in the Australian student accommodation market must now move from primarily a development phase, into a focus on operations. Initially, this will be to attract students and stabilise new properties’ occupancy levels. This change in business mode, to deliver strong asset performance returns, has been coined by certain market participants as the challenge to “put the rubber on the road”. Operational performance driven by good management is key area of interest for market observers moving into 2018.
Focusing on the main capital cities, Savills 2017 research indicates that 38,960 beds were provided by commercial operators. In addition, Savills research indicates that 7,793 bedrooms will be delivered in 2018. From the start of semester two 2018, commercial providers will be operating a total of 46,753 bedrooms across Australia. This rapid increase in the supply of accommodation is undoubtedly going to cause some challenges and opportunities for operators. New players entering the market looking to establish brands and stabilise assets, with existing operators protecting market share as new competition arrives.
A deeper look into each market
In Sydney, a total of 1,034 bedrooms are due for completion in 2018. Overall, the PBSA development pipeline remains relatively restricted in Sydney, due to continuing buoyancy in the value of development sites – primarily driven by residential developers in the key locations for student accommodation. The University of Sydney (and its associated colleges) is also active, with a number of new projects underway. The uptake for off-campus accommodation in 2018 has been strong, with most high-quality assets now at or near capacity.
The Melbourne market has also had a robust start to 2018, with strong demand for bed spaces. Savills research indicates that 1,709 new beds of accommodation are due for completion in 2018. We see continuing strong demand for this new accommodation, particularly at the lower rental price points.
Brisbane has a significant amount of new accommodation due for completion in 2018. Our research indicates that 3,922 bedrooms will be completed. This represents a 44 percent increase on top of the existing provision of commercial accommodation (8,870 bedrooms). There is also some indications of lower than expected demand for accommodation priced towards the top of the market, with rental discounts being offered to students, and self-contained studios being reprovisioned to twin rooms with the inclusion of bunk beds. The new delivery of accommodation at Southbank is creating a student hub, with focused activity and vibrancy in that location. Continuing opportunities to delivery new accommodation at lower end of the market price point.
Adelaide has also been active, with Savills research indicating that 1,128 bedrooms will be delivered in 2018. This is off a relatively low base of commercial provision of 3,047 beds. Demand has been steady for the new well located accommodation that has recently been completed.
In Perth several new projects have been promoted in the last 12 months and construction is underway on Global Student Accommodation’s (GSA) first scheme in Northbridge which is anticipated to open in 2019.
In New Zealand there has been very limited delivery of new off-campus PBSA in the last two years as build costs have risen to levels that impacts on the financial feasibility of projects. Levels of demand appear relatively robust in the main cities of Auckland, Wellington and Christchurch. The residential rental markets are currently relatively tight with limited vacancies and there has recently been several news articles on rising rental levels.
Future outlook for student housing
Looking forward to 2019, the pipeline supply for Melbourne and Brisbane remains strong, and Savills will be closely monitoring the uptake of new PBSA within both of these markets. There appears to be continued excess demand for good quality PBSA in Sydney, with developers and investors focussing hard on new opportunities – Savills predicts that non-CBD locations may become increasingly prevalent for new off-campus residences.
While supply has been increasing across most of the main markets, it is important to note that the existing provision of institutional-quality PBSA in Australia is coming from a historically extremely low base, with supply levels very low by international standards. The delivery of this new wave of accommodation is benefiting students by giving them access to modern facilities, well located in respect of their place of studies, together with enhanced levels of amenities. The delivery of new high-quality PBSA has also been identified as a key enabler of the continued performance of Australian universities within the global Higher Education market.
On campus, there have been several new projects in the past 12 months. The University of Melbourne entered into an agreement with Lendlease as the master developer and Urbanest as the student accommodation developer for approximately 450 beds of new accommodation within the Carlton Connect mixed-use development. The University of Tasmania completed an outsourcing of its student accommodation portfolio in Q3 2017. More recently, James Cook University is delivering approximately 500 new beds of accommodation at its Cairns Campus for the start of 2018.
Savills is seeing an increasing amount of activity involving universities taking a more commercial focus towards the operation of and investment into the provision of on-campus student accommodation. Through this process, there will be more opportunity for collaboration between the universities and the experienced student accommodation providers.
There are also a number of proposed developments in smaller cities and regional areas, as universities in these localities identify the need for provision of quality PBSA to support the wider objectives of the university. The feasibility of these new regional projects are typically more challenging without the strong back-up of a direct let alternative, so universities are often required to underwrite a certain level of occupancy or revenue. It is expected that this is a trend which is set to grow in the short to medium terms.
International students in Australia
From a demand perspective, the latest available student demographic information from the Department of Education and Training (February 2018) indicates that international students studying in Australia increased from 253,757 in 2015 to 278,718 in 2016 representing an annual increase of 9.8 percent. This has been on the back of strong double-digit growth throughout the past two years.
The Australian international student market is continuing to be dominated by a large number of students from Southeast Asian countries, with China and India continuing to be the strongest countries of origin.
As of the start of March 2018, the new 457 Visa regulations have come into force. There have already been some indications that these visa changes will have material impacts on the Australian University sector. In the past, certain levels of international students have been attracted to Australia on the basis that they could convert student visas into longer-term visas with the ability to work and remain in Australia. It is expected that the impact of these visa changes will be reflected in student enrolments in 2019.
Student accommodation in catch up mode
In summary, Savills sees the Australian student accommodation market in a “catch-up” mode coming from a historically low supply of University and College accommodation, which was primarily on-campus and with a significant amount of catered offerings. There is a new wave of institutional development – particularly focused off campus – with a large amount of new PBSA being delivered across Australia’s capital cities in 2018 and 2019.
While Savills considers that there may be some locations with reasonably limited short-term performance rental increases and occupancy levels, the company does not consider that at this stage any of the major Australian markets are reaching a supply saturation point. There are still numerous opportunities in most markets to meet the growing levels and expectations of student demand. The critical success factors for the successful delivery of new accommodation will - from a real estate perspective - focus on factors such as the location of the property and a tenancy mix (with corresponding rental price points) to meet the local market. Competent management will be essential to ensure operational success and will be more important than ever moving forward and supply increases in many Australian markets.
In New Zealand the supply of new PBSA will remain restricted until build costs, or land values in the main cities ease.
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