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In brief - International investment up along with increase in government incentives

The serious shortage of student accommodation in Melbourne, Sydney and Brisbane offers opportunities for local and international student accommodation providers. This year has seen a spike in investment in this area, which is partly attributed to the increasing actions of local and state governments to address this shortage by offering financial incentives to investors.

Market shows signs of steady growth in 2016

Our November 2015 article "Student accommodation - can you make money from it?" looked at the opportunities for investors in the Australian student accommodation market, the difficulties they may face when competing with residential developers for suitable land and the reluctance to enter an unknown market.

In this update, we look at how the market has shown steady growth in the last six months, particularly from foreign investment, how it compares to the London market, and the actions that governments in Australia are increasingly taking to incentivise investors.

Student bed providers UniLodge and Urbanest recently complete Sydney project

CLV, UniLodge, Urbanest (accommodation pictured right), Student Housing Australia, Living + Learning Partners, The Pad, YMCA, Frasers, Iglu (accommodation pictured below right) and Scape set the benchmark in terms of number of beds managed and their market share appears to be growing.
UniLodge (accommodation pictured above right) and Urbanest in particular have recently completed projects at Central Park in Sydney, adding these sites to an expansive portfolio.

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

 
   

Title: Market Share
(Source: JLL Australian Student Accommodation Market Update 2015)

Overseas investment in student accommodation sees remarkable growth in 2016

Interest in Australia's student accommodation market has continued to increase this year with large financial commitments and partnerships announced in only the last few months. These include:

  • Industrial and Commercial Bank of China Ltd invested around $100 million in a joint venture with British provider Scape and Dutch pension fund APG. Scape has indicated that the group plans on investing over $1 billion over three years in projects on the eastern seaboard
  • Houses south of inner-city Brisbane are to make way for Wee Hur Holdings Ltd’s towers to accommodate more than 1,600 Brisbane students
  • South African real estate company Redefine Properties has its eyes set on entering the Melbourne market
  • Property developer GSA, with headquarters in Dubai, stated in March that it would buy provider Campus Estates, with a target of more than 25,000 beds in Australia
  • Goldman Sachs and Blue Sky Alternative Investments have agreed to terms with a goal of a $1 billion student housing portfolio in the future

This indicates the sheer volume of finance being injected into the market at an exponentially growing rate, particularly from overseas.

How Australia's student accommodation market compares with London market

According to real estate group JLL data, London supplies around three times more student accommodation to its total full time students than Melbourne. Interestingly, university provisions are far smaller in Australia compared to London. This suggests that the market for student accommodation in Australia is even stronger than in London due to a greater gap between the number of students and what the universities themselves can provide.

2016 has seen a great deal of investment in the London student accommodation market as well, with sector giant CLV partnering with Arlington Investors to acquire an additional $235 million portfolio in March.

Push for innovative infrastructure may help spur NSW's student accommodation market

Brisbane City Council's commitment to a $13,440 discount on infrastructure and utilities charges for every student accommodation unit built within a certain radius of the CBD is an example of how governments are aware of the shortage and are showing that they are willing to assist student accommodation providers to overcome barriers to entry and boost accommodation supply.

In New South Wales, it appears that the state government wishes to encourage student accommodation as part of the Sydney landscape. State MP and former Parliamentary Secretary for Tertiary Education and Skills, Mark Speakman, commented that the state government has already worked within this space: "The NSW government’s involvement in the Queen Mary project was to sell the building to the University of Sydney through the government’s Unsolicited Proposals Process [for student accommodation purposes]."

The Unsolicited Proposals Process is described by the government as an opportunity for "non-government sector participants to approach government with innovative infrastructure… that provides real and tangible benefits to the people of NSW".

UniLodge plans more student housing projects in coming two years

In the last six months, the number of large-scale transactions and developments in the pipeline in Australia has grown and this looks likely to continue.

UniLodge Chief Executive Officer, Peter Bates, commented that UniLodge is very focused on delivering purpose built student accommodation and high quality services to students, with more properties in the pipeline for 2017/2018. "A purpose built student accommodation property is a very different offering to a residential property, with student accommodation managed as a cohort of students in a tight community," Mr Bates said.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2019.

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