Australia: Student accommodation - can you make money from it?

In brief - Australian market offers opportunities for student accommodation providers

Although Australia's universities continue to attract international students, there is a serious shortage of student accommodation in Melbourne, Sydney and Brisbane. Developers may be reluctant to invest in this market, preferring quick profits from residential development, but governments are showing signs that they are willing to offer financial incentives. While further investment is imminent, governments will need to do more.

Australia ranks high as education destination but lacks student accommodation

Education remains a constant cornerstone of the Australian export market, epitomised by recent Department of Education research that ranks Australia as the fifth most popular place in the world to study. This international demand for tertiary education does not appear to be waning, with the Department forecasting a 30% increase in international students by the year 2020.

This quickly raises questions as to where these students will live. University students who aren't living "at home" or in their own rented properties, may reside in either commercial Purpose Built Student Accommodation (PBSA), or provisions the university sets out itself, usually on campus. Growth, however, originates from commercial PBSA, which already supplies far more beds than the universities.

The reputable QS World University Rankings ranks five Australian universities in the top 50, including the Australian National University, Melbourne University, the University of Queensland, the University of NSW and Sydney University. It is therefore unsurprising that the Department found that three-quarters of students study on the Eastern seaboard, indicating that the active markets are capital cities along the East Coast.

The shortage of student accommodation in these cities is so prevalent that real estate group JLL expressed, in its recent Australian Student Accommodation Market Update 2015, that even with pipeline development, total supply would be at 9.08%, 10.26% and 13.65% in Melbourne, Sydney and Brisbane respectively. This paints a crystal-clear picture of the student accommodation shortage, as the market is already starting behind and is projected never to catch up.

Top ten student bed providers rapidly growing market share

There have been a number of large developments in 2015, including the Urbanest Central and UniLodge at Central Park in Sydney and the Urbanest development on La Trobe Street, Melbourne. These providers in particular are big players in the private student accommodation market, only topped by accommodation provider CLV. According to the JLL Market Update, these top three providers are followed by Student Housing Australia, Living + Learning Partners, The Pad, YMCA, Frasers, Iglu and Scape in order of number of beds owned or managed.

These top 10 providers are rapidly growing their share in the market with data showing that their total number of beds increased by 9% in the last 12 months. This still does not account for their 13 buildings in the pipeline, which will balloon their total combined number of operational beds to 37,068.

Figure 1: Share of total operational and pipeline beds as at February 2015


(Source: JLL Australian Student Accommodation Market Update 2015)

Market sees increase in large financial commitments and partnerships

The market is not stagnant, however, and the increased interest in the market has sparked large financial commitments and partnerships, such as:

  • British accommodation provider Scape will develop a $400 million student accommodation precinct backed by Dutch pension fund APG
  • Relatively new operator Living + Learning Partners is led by another British provider in Balfour Beaty
  • A two-stage $55 million development in Brisbane's south is already underway with the backing of Singapore giant Wee Hur Holdings
  • Other notable investors in the market include Singapore wealth fund GIC and Macquarie Capital

This indicates the sheer volume of finance being injected into the market, which demonstrates the potential profits in the eyes of commercial providers. Or maybe they simply have too much money to invest. Only time will tell which is the case.

Residential development often seen as a more attractive investment

In evaluating the opportunity for student accommodation development, it is important to recall the objective of a long-term high yield as opposed to the relative "snatch-and-grab" of residential development. This yield relies on student demand, which is dictated by the affordability of the city itself. This can ebb and flow with:

  • the Australian dollar
  • students' willingness to pay
  • potential rental inflation

For a developer to commit to student accommodation, the positive signs in these three criteria must outweigh other feasible development options, particularly residential development. While the real estate market is hot, these three considerations pale in comparison to the potential residential profits. Thus, those looking to use the land for PBSA are outbid by buoyant residential developers.

A further barrier to entry is the intimidation of an unknown market. JLL's director of student accommodation, Conal Newland, underlines the importance of market knowledge. He indicates that while there are international players and investors willing to make financial commitments, they would rather acquire experience from local operators through partnerships.

Supply of student accommodation in London significantly higher

The London student accommodation market is a fair comparison. Home to many of the world's premium tertiary education institutions, it is an international student hub. According to JLL data, it boasts a 27% supply of accommodation to total full-time students, an enormous difference from the aforementioned 9.08% in Melbourne. Interestingly, university provisions accommodate 18% of London's full-time students, which is a stark contrast to Melbourne again, where university provisions only cover 2.4% of full-time students. This data suggests that the market for PBSA in Australia is even stronger than in London due to a smaller supply and a lower level of provision from universities.

The London student accommodation market is still experiencing a shortage and providers are investing heavily, with JLL predicting total transactions to exceed Ł5 billion by the end of the year.

Governments increasingly willing to assist student accommodation providers

With residential developers outgunning student accommodation providers and the gap between beds provided and students needing them continuing to grow, it is unlikely that the market will right itself in the short term. However, governments have exhibited their willingness to assist student accommodation providers to overcome this barrier to entry. For example, the Brisbane City Council has already committed to a $13,440 discount on infrastructure and utilities charges for every student accommodation unit built within a certain radius of the CBD. Brisbane has a great deal of accommodation in the pipeline, so this incentive may very well bear fruit. However, only time will tell the quantifiable effects on the market.

One can only assume that the future lies in zoning restrictions, essentially carving out areas of land in CBD areas explicitly for student accommodation development. This will enable providers to have access to prime real estate without competing with a buoyant residential market. The actions of Brisbane City Council suggest that governments are not oblivious to the shortage and are willing to take steps to see it addressed.

Market offers great potential for student accommodation developers

While it is unlikely that our cities will all become student havens, it is imminent that the number of large-scale transactions and developments in the pipeline will grow.

In a February 2014 interview with the Australian Financial Review, the director of student accommodation provider Iglu spoke frankly about the simplicity of the equation: "The increase in student numbers has not been met with an equivalent increase in suitable accommodation supply." For this reason, there is a great deal of potential. A careful read of the market could result in a highly profitable student accommodation development which may even reap further benefits with government assistance.

Brendan Maier
Property acquisition, development and sale
Colin Biggers & Paisley

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.

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)
Related Video
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.