Australia: The growth of student accommodation as an asset class in Australia

Global student accommodation

Student accommodation has become a global asset class in its own right. The three main factors driving the growth of global student accommodation are:

  • the increase in the global mobility of students;
  • global operator appetite is emerging, as key management platforms seek to generate international student accommodation brands; and
  • global investor appetite is growing with institutions seeking to diversify portfolios outside of the US and the UK, and this phenomenon is an example of how they are seeking investment in real assets.

While the demand for purpose-built student accommodation in Australia is rising, the Australian student accommodation market is immature in comparison to the market in the US and the UK.

The key barrier to entry in the Australian market is the viability of student accommodation development against other land uses. With student and residential developments often having the same location requirements, student accommodation developers are regularly outbid due to the strength of the residential markets. This in turn has the effect of slowing the institutionalisation of the asset class and we do not expect to see many transactions in the Australian market in the short term.

As a contrast, the UK student accommodation market has seen unprecedented investment activity in 2015, totalling £3.8bn in the first six months, 2.1 times the total volumes in 2014. This activity has been dominated by large portfolio transactions, the majority of which have been taken up by international equity. Foreign investors continue to be attracted to the sector's continued annual rental growth, but also the forecasted growth in student numbers.

Driving demand

The rising number of students in Australia, in particular international students, is having a direct impact on the demand for affordable student accommodation.

International student visa holders in Australia for 2014 totalled 453,500, accounting for students from 191 countries, with the majority from China1. This represents a 10.4% increase over the number of international student visas granted in 20132. The majority of student visa holders held a Higher Education visa, that is students studying a bachelor degree, associate degree, higher education diploma, graduate certificate and graduate diploma or Masters by coursework, followed by student visa holders who held a Vocational Education and Training visa3.

Foreign students provide a valuable source of revenue for universities and offering potential students accommodation in close proximity to the university or college campus, in a secure and safe environment is a top priority for educational institution. Specialist private operators are entering the market to offer purpose-built student accommodation, providing an alternative to on-campus accommodation but with the same management control and all-inclusive set-up as compared with students finding accommodation in the private residential rental market.

Given that the number of student visas issued each year is increasing and the relatively low corresponding number of purpose-built student accommodation beds available, there are significant opportunities for this investment class to continue to grow in Australia, and for off-shore Asian based investors to take advantage of this.

What is purpose-built student accommodation (PBSA)?

The growth of the PBSA market has given students who cannot access university Halls of Residence choice. The PBSA options offer higher quality accommodation, rents inclusive of bills, varying options on tenancy lengths, a branded product, enhanced internet connectivity, professional management and security. Preferred development sites are within easy access to one or more universities or private colleges, with good access to transport and amenities.

The range of PBSA offerings is growing. Student accommodation may be in the form of self-contained studio apartments with kitchenettes, charged at a premium weekly rent. Alternatively, students can rent an en-suite or non en-suite bedroom and share communal kitchen and living facilities with two to eight people, for a more affordable rent, Successful PBSA schemes will have a mix of bedroom types to accommodate a wide range of student budgets.

Of growing importance in the student accommodation sector is that of effective branding and marketing, whereby students are viewed as highly sophisticated consumers. Added value opportunities are also observed in providing a highly specified product and providing amenities such as common rooms and entertainment areas to drive rental value.

Models for delivering student accommodation

There are four main models for delivering student accommodation:

  • Management only providers – student accommodation providers partner with universities or private developers to provide marketing and operational management services at new or existing facilities.
  • Build, own, operate transfer (BOOT) – student accommodation providers partner with universities or other educational institutions on a long term lease to build, own and operate the student accommodation. At the end of the term (typically about 35 years), the facility is returned to the university. Depending on the terms of the BOOT Agreement, the services of the student accommodation provider can include managing the facility, marketing and leasing the units and maintaining and renovating the facility. A characteristic of the student accommodation market in the UK in 2013 was the university lease which appealed to institutions, due to the security of income flow underpinned by the covenant of the University. UK funds such as L&G became the market leaders in acquiring and securing such termed 'income strip' deals in this year.
  • Develop, strata and management – student accommodation is developed and the lots are strata subdivided. The units are sold to individual investors on the basis that they may only be used for student accommodation and are leased to the student accommodation operator. This model is declining in popularity due to difficulties in financing the purchase of such units and a smaller pool of potential buyers when the owner wants to re-sell the asset.
  • Wholly integrated providers – providers who develop, own and manage the student accommodation properties themselves. Such providers generally buy sites on land near to education institutions with good access to public transport and amenities and are responsible for developing purpose-built off-campus accommodation, marketing and managing the property themselves. As highlighted by the examples below, there has been an increase in the number of institutional investors partnering with experienced student accommodation operators to develop, own and manage student accommodation in recent years. In the last decade, the UK has been dominated by owner/operator to owner/operator transactions. We expect this pattern to continue in Australia as current players in the market scale up their portfolios.

Role of the operator

Without a student accommodation platform in place, an owner will usually enter into a Management Agreement with an established operator. At present, there are only a small handful of operators of scale in the Australian market.

The precise scope, terms and duration of the Management Agreement will depend on the individual agreements but the following functions are generally performed by the student accommodation operator in return for a monthly service fee:

  • assisting with the commissioning and set-up of the student accommodation facility prior to it opening;
  • arranging marketing and letting campaigns;
  • entering into tenancy agreements with students and collecting revenue;
  • providing or procuring operating and maintenance services, including cleaning common areas and waste removal;
  • arranging for payment of all utilities, rates, security costs, repairs, insurances, cleaning and waste removal;
  • reporting obligations and attendance at regular meetings with the owner of the facility.

With the globalisation of the student accommodation sector, we expect there to be increased competition from operators in the UK and the US who aim to create a global platform.

Considerations for Australian student accommodation

Zoning and Use Considerations

Developers must pay careful attention to the permissible uses in a particular zone and the applicable planning standards and criteria that apply at a site as purpose-built student accommodation is a relatively new development category in Australia and planning instruments frequently do not recognise it as a stand-alone category of use for planning purposes.

For example, under the New South Wales Standard Instrument – Principal Local Environmental Plan (upon which the majority of New South Wales local environmental plans are based), student accommodation is not separately defined but falls generally within the definition of "boarding house", which is traditionally associated with low-cost housing in Australia. Accordingly, student accommodation developments in New South Wales will currently fall under the planning standards and development criteria for boarding houses, which are found in State Environmental Planning Policy (Affordable Rental Housing) 2009, despite the fact that most recent purpose-built student accommodation has been targeted at the higher end of the student accommodation market.

In other states, notably Queensland, there is strong support for student accommodation especially within close proximity to the Brisbane CBD. Under the new Brisbane City Plan 2014, a clear distinction between the definition of multiple dwelling and rooming accommodation has been drawn. The City Plan 2014 also introduced a separate code, the Rooming Accommodation Code, to assess rooming accommodation and where compliant, development will be self-assessable and not be subject to Council assessment.

Government Incentives

Local councils are also starting to recognise the value of increasing student accommodation supply and are introducing incentives to facilitate this.

For example, in February 2015, the Brisbane Lord Mayor announced an 80% reduction on infrastructure charges if developers build student accommodation in certain areas of Brisbane, including within four kilometres of the Brisbane CBD. The reduction will apply to development applications that take effect between 1 July 2014 and 30 June 2017.

Developments eligible for the reduction must substantially commence building work within two years of the development approval taking effect and the development must also commence operation within a specified period. The student accommodation developments must contain a minimum of 20 bedrooms, include an active onsite management regime and be operated and managed by a bona fide and experienced tertiary or higher education student accommodation provider.

Recent notable transactions

Recent transactions within the Australian student accommodation market include:

  • Government Investment Corporation of Singapore (GIC) and Macquarie Capital – In January 2014, these parties entered into a joint venture agreement to buy a majority interest in Iglu, a wholly integrated provider of student accommodation, that holds purpose-built student accommodation comprising over 900 beds in Chatswood, Sydney CBD and Brisbane CBD, with further plans to expand. In April 2015, Iglu purchased a prime development site in Melbourne for close to $20 million.
  • AGP and Scape Student Living - In January 2015 the Netherlands based pension fund asset manager and UK based company, formed a joint venture with an initial commitment of $220 million to develop and manager student accommodation across Sydney, Melbourne, Brisbane, Canberra and Adelaide. The joint venture has so far acquired two development sites in Melbourne with a goal to deliver 1,500 beds by 2018, and is targeting the luxury student accommodation market, based on similar Scape projects in the UK.
  • Unilodge - As the first transaction of an operational direct let asset, Unilodge have bought three assets in Melbourne previously owned by the YMCA. They now have 4,000 beds in Melbourne. The pricing has not been published but it will be a good indication of the market yield for direct let assets.
  • Marquette Properties – Have recently lodged a development application for a 39 Storey tower in the heart of Brisbane CBD for student accommodation. The purpose built student accommodation tower will be one of the largest in the city with a proposed 753 rooms. This application follows an approval for the refurbishment of an existing office tower to be converted to student accommodation yielding approximately 650 beds.

Conclusion

With the UK and the US markets having matured considerably over the last decade, we expect large players in those markets to attempt to reap the rewards of the supply gap and higher returns in Australia. Only 1 in 7 students in Sydney can currently access purpose built accommodation, while in London this ratio falls to 1 in 4. Yields in the UK have hardened in the past 12 months, with prime London direct let yields now at circa 4.75%. Whilst there has been little evidence in the Australian market, we would expect yield of circa 7% in prime Sydney and Melbourne.

We expect the future of the global student market to be characterised by competition amongst large operators to become the first truly global student accommodation brand. We fully expect this investment class to continue to grow in Australia and provide opportunities for both domestic and offshore investors. While we believe the institutionalisation of the sector will be restricted in the short to medium term due to certain barriers to entry, the weight of capital chasing opportunities indicates a very positive growth story ahead.

Footnotes

1Australian Government, Department of Education and Training – Research Snapshot, International student numbers 2014 (dated March 2015)
2Australian Government, Department of Education and Training – Research Snapshot, International student numbers 2014 (dated March 2015)
3Australian Government, Department of Education and Training – Research Snapshot, International student numbers 2014 (dated March 2015)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.