Investing in Student Accommodation
Overseas learning has become a big business and Australia ranks as one of the leading destinations for overseas students to study. In this guide we dive into the fundumentals of investing in student accommodation.
Education is Australia’s third largest export industry and one of Australia’s most dynamic industries, worth $33.0 billion in 2018 in fees, goods and services (Source: DFAT).
Australia is also the world’s third most popular destination for education, accounting for 7% of the world’s 5 million foreign students (Source: UNESCO). The strong growth in international students in Higher Education has continued, growing by 14.3% in 2018. International student enrolments have increased by 73% over the last five years.
The competitiveness of Australia as a place to study has continued to improve with Australian cities becoming more affordable globally and its universities generally improving their global ranking. Cost of living and global rankings are key drivers of demand together with a strong and stable economy.
The quality of Australia’s universities in the global market for higher education is a major drawcard for international students.
There were 498,155 international students studying on a student visa in Australia in 2015.
This represents a 10% increase over 2014 figures. The top five nationalities were from China, India, Vietnam, Republic of Korea and Malaysia which remain unchanged from the top five nationalities in 2014. Only Vietnam saw a reduction in growth year on year between 2014 and 2015.
In the UK the ratio of students to student beds is 5-1 whereas in in Australia its 10-1.
While some of this can be explained due to the greater propensity of UK students to travel interstate, it helps to demonstrate the under-supplied situation in Australia.
By the end of 2020, Knight Frank projects the national under-supply figure to increase by 39% to 404,700 beds, as the rate of full time Higher Education student growth continues to outpace the development of bed spaces, and the number of mobile students, as a proportion of the total, increases on trend.
Student Accommodation in Australia is still a tightly held sector. Most of the owners investing in student accommodation are combined developer/manager/operator models with a strong flavour of offshore ownership by major groups such Washington State Pension (Urbenest).
However, recently we have seen a number of transactions occur as opportunities emerge and the industry starts to fragment.
Yields have started to firm in Australia, but only on light transactional evidence. As seen in other commercial property sectors in Australia, domestic yields look attractive compared to offshore yields in both nominal terms and net of bond rates.
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For more information on commercial property in general, read our article Investing in Commercial Property – The Ultimate Guide.