Institutional investors target Australian student housing
Australia's Purpose-Built Student Accommodation (PBSA) sector is experiencing rapid growth, driven by the return of international students in the years following the Covid-19 pandemic and a shortage of suitable housing.
"Education is Australia's fourth biggest export. We have the third-highest number of enrolled international students globally but limited high-quality purpose-built student accommodation in our capital cities relative to other education hubs,” said Ruban Kaneshamoorthy, co-head of real estate business for Brookfield Asset Management in Australia.
Brookfield Asset Management
"There are strong tailwinds behind the sector. It's still a relatively new sector in Australia, only really developing over the last 10 years," he told AsianInvestor.
This growth is underpinned by Australia’s strong position in the global education market.
The country consistently ranks highly in university standings, and its proximity to Asia, combined with the quality of student life, cements its reputation as a go-to destination for higher education, according to JLL Research.
The research also underscores the significant role the education sector plays in Australia's economy, with China contributing A$8.7 billion ($5.87 billion) to Australia's education export income in FY 2022-23, representing 24% of the total revenue.
India is rapidly emerging as another major contributor, generating A$5.9 billion ($3.98 billion) and accounting for 16.3% of the total.
These fundamentals led Brookfield to making a strategic move in the midst of the pandemic.
"When Covid hit, we saw an opportunity to aggregate student accommodation sites as larger players became internally focused,” said Kaneshamoorthy.
In 2021, Brookfield formed a partnership with Journal Student Living, the student accommodation operating unit of Australian developer and investor Citiplan. This collaboration culminated in the acquisition of a 50% stake in Journal this month.
The joint venture currently has projects under construction in Melbourne and Brisbane, with Journal set to manage the A$1 billion ($674.56 million) portfolio upon completion.
“We partnered with Journal Student Living and now have three sites with 2,500 beds under development. Our first asset is set to open in advance of semester two 2025."
WHY PBSA
Brookfield, a global alternative asset manager with $995 billion in assets under management, has been strategically expanding its PBSA portfolio in Australia.
"The Australian real estate business has about A$14 billion ($9.44 billion) of assets under management. Roughly 40% of that is traditional office, and the other 60% is a mixture of living, logistics and miscellaneous assets,” said Kaneshamoorthy.
Brookfield continues to see significant growth potential in the PBSA sector.
"We're focused on the Group of Eight universities and other sandstone universities, which we believe will continue to be a large part of Australia's education exports."
The Group of Eight (Go8) refers to Australia's eight leading research-intensive universities: the University of Melbourne, Australian National University, University of Sydney, University of Queensland, University of Western Australia, University of Adelaide, Monash University, and UNSW Sydney.
While many limited partners (LPs) and institutions are targeting Australia’s living sector through Build-to-Rent (BTR) investments, Kaneshamoorthy argues that the PBSA sector offers more advantages.
"You get more yield per square metre as students generally have more confined living areas. There are favourable tax conditions compared to build-to-rent. You don't need as much parking, which reduces construction costs." he said.
"We've looked at build-to-rent, but have currently found the returns difficult to justify given high construction costs, the tax regime, and net yields. Senior living and student accommodation have been better avenues for us."
MARKET DYNAMICS AND CHALLENGES
While demand for PBSA remains strong, the sector faces supply-side challenges, according to Sameer Chopra, Pacific head of research at CBRE.
CBRE
"We anticipate international student numbers which are directed at the Universities will stabilise over the short-term before potentially picking up again later in the decade,” Chopra told AsianInvestor.
Demand for PBSA continues to outstrip supply significantly, and so a brief pause in growth might actually be beneficial. “For example, we estimate excess demand for 25,000-30,000 studios in the University of Sydney/UTS precinct alone," he said.
Brookfield’s Kaneshamoorthy acknowledges these challenges.
"Australia has a chronic housing shortage because it's difficult to bring supply online - the economics for most forms of housing don't stack up well currently," said Kaneshamoorthy.
"Student accommodation is one of the few forms where we can build at scale and density without worrying about pre-commitments, and the returns are still reasonably strong."
OUTLOOK
The sector's growth potential is fundamentally supported by changing demographics and the resilience of the education sector.
"Economic factors are less relevant in demand as education is a longer-term investment made by parents. We have seen this during previous cycles, particularly during periods when the Australian dollar was significantly stronger than it is today," said CBRE’s Chopra.
Broofield’s team also observes strong demand growth, especially from the rising Asian middle class seeking world-class education.
“Getting prime locations near universities is key. In Australia, you still have some first-mover advantage in securing these sites," said Kaneshamoorthy.
He also noted a potential positive impact on Australia’s broader housing shortage.
"By providing purpose-built student accommodation, we're taking students out of the general housing stock, freeing up housing for others," he said.
Independent advisory firm Oxford Economics projects that PBSA room rents will grow by over 20% from 2024 through 2028. Additionally, the population of tertiary-aged students in Australia is expected to grow by 15% over the next decade, outpacing other major student housing markets including the US and Britain.
"This provides an enormous opportunity and we view student accommodation as one of the best ways to invest in the living sector in Australia," said Kaneshamoorthy.