Student Accommodation market graduates to the next level

Growth in Australia’s education sector attracts new wave of global capital

The latest research from Colliers International identifies the key trends in Australia’s Purpose Built Student Accommodation (PBSA) sector and forecasts a re-rating of the prime student accommodation market.

“The Student Accommodation sector has witnessed significant growth in recent years as the weight of capital entering the market balloons and strategic partnerships are formed to capitalise on the increasing appeal of Australia as a student destination,” said Chris Milou, Director at Colliers International.

The Purpose Built Student Accommodation White Paper shows that as a result of years of falling public funding to universities, higher education providers are increasingly turning to international students to underpin their growth strategies. Amid a flood of international students, led by China, enrolling in Australian universities, sovereign wealth funds and institutional investors are increasingly investing in student accommodation.

“Two key trends are emerging that will characterise the market for Purpose Built Student Accommodation and force a re-rating of prime student accommodation,” said Guy Wells, Associate Director at Colliers International.

“Yield compression in the prime student accommodation market will be a defining feature of the PBSA sector in the short term whilst product differentiation and quality of assets will dictate value over the medium term.

“The centrally located nature of a number of universities, principally in Melbourne and Sydney, coupled with the appetite from PBSA developers and demand from alternative users, has seen development sites surrounding the universities with potential for PBSA schemes record significant value uplift.

“The development of the latest wave of PBSA by the likes of Iglu, Scape, GSA, Urbanest and Blue Sky will form the bulk of the properties which will attract prime yields. The Frasers Central Park student accommodation properties which have recently been offered to the market with a transaction value of reportedly $400 million will force a re-rating of the prime student accommodation market.”    

In addition, increasing differentiation of quality assets will lead to a more defined, two-tiered market.

“New developments will cause a further divide between prime and secondary PBSA stock, as developments will be largely determined by the quality and variety of amenities offered,” said Guy Wells.

“The most active players in the market are chasing assets that provide the location which has the right student accommodation demand drivers and a sizeable scale where an owner/operator can cement their position in the market.”

Education has become Australia’s largest services export and sits third overall for source of export income after coal and iron. It generates close to $20 billion in export revenue from international students.

“Full time, international higher education enrolments have shown annual compound growth rates averaging at approximately 7 percent between 2001 and 2015, with the largest increases shown in NSW and VIC,” said Chris Milou.

“Australia remains a highly attractive destination for international students due to its quality education offering and, with the devaluation of the AUD in recent years, it is an increasingly affordable destination relative to a number of currencies. 

“Demand for purpose built student housing to accommodate this influx of international students is exceeding supply in all major cities, with limited opportunities for development in some markets further fuelling this supply gap.” 

Read the White Paper here

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