Australia: Student accommodation - getting the right solution

It is widely recognised that universities need to help meet student accommodation demand to secure student enrolments. The objective is clear, but universities need to decide whether to achieve it by providing the solution themselves or using an external provider.

A major driver of the increased demand for university facilitated student accommodation in recent years has been the influx of foreign students to Australian universities. Questions have been raised about the level of growth in student accommodation demand that will exist in the future and whether the market is reaching maturity. While a great deal of demand has been met, it continues to grow at many universities, as shown by research such as Knight Frank's August 2013 Research Insight – Student Accommodation, Inner Sydney Market. Sources of demand other than foreign students also exist, such as replacement of ageing stock and interstate enrolments.

Packaged solution, do-it-yourself or something in-between

Significant private sector businesses have emerged to provide student accommodation within Australia and overseas. The project finance model of infrastructure and service provision has been adopted for many major student accommodation projects. By taking this targeted outsourcing approach, universities have been able to make the most of these packaged solutions to achieve greater whole-of-life costing certainty over building and operating accommodation solutions.

Other universities have rethought their approach after the private provider market either couldn't meet their needs or required them to commit to a larger project or a longer concession period to make the project viable. For example, significant issues have arisen around the requirements of financiers and the allocation of demand risk between the university and the private sector partner. The response of some universities has been to take projects back, manage construction contracts themselves and reconsider whether to outsource the operation of the accommodation while the project is being built.

No one procurement methodology will suit all universities. The key to getting the right solution is to thoroughly test the university's needs and understanding of how the market is likely to respond to those needs. A packaged solution may appear to be the best solution, but it won't work if the market has no appetite for the university's offering.

Recently we have seen the use of leasing solutions by universities, which may be an attractive alternative to the capital cost of direct procurement of accommodation or the demands of a project financier. As with a packaged solution, the university will need to ensure it is only exposed to appropriate risk. For example, lessors may follow financiers in trying to impose maintenance and occupancy commitments, which should be considered carefully.

Clarity over student activities and care

Two of the key considerations in adopting a student accommodation solution are how student activities in the accommodation will be regulated and the extent of 'pastoral care' that will be available. Any solution, other than a wholly university provided one, will raise issues of the interaction between the university's student rules and the requirements of the service provider. Universities will need to address how disciplinary matters are to be handled between themselves and the provider. Appropriate allocation of responsibility for activities on the site, such as property damage caused by students or their guests, may also be required. Where a pastoral care offering is part of the service provider's package, alignment with the university's values and requirements will also be necessary.

University stakeholder and financial management considerations

Based on our experience with structuring student accommodation projects, we know the internal arrangements of a university can have a significant bearing on the student accommodation approach. One of the keys to success is to closely manage the interests of various stakeholders. One internal issue that can have a significant impact on these interests is the way university revenue and expenses are treated and allocated in the university's financial management systems. This can have a disproportionate impact on the way particular stakeholders view a potential project. Lack of detail in the university's financial records can also make it difficult to accurately compare insourced and outsourced solution options.

It comes down to homework done well

Student accommodation can be a strong market differentiator for universities, and a key factor in driving enrolment growth. Any student accommodation solution needs to be tailored to the needs of the university. There are multiple options that are available but universities need to do their homework on what is viable for them. In doing so they should be aware of the needs of their students and stakeholders, as well as any internal issues that need to be addressed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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