Surge in student accommodation reflects global trend

Surge in student accommodation reflects global trend

2 November 2018

Australia is set to benefit from global trends driving demand for purpose-built student and co-living rental accommodation, reports the AFR.

According to the Savills Global Living report, student housing investment volumes globally have risen 87 per cent in five years.

The provision of purpose-built student accommodation (PBSA) is highest in the UK and lowest in southern Europe.

Savills Australia’s director for student accommodation, Conal Newland, said that the supply of new PBSA in Australia was growing in many of the major cities, underpinned by a lack of existing accommodation and strong student population growth.

“As the 20- to 39-year-old age bracket becomes more prevalent in the rental market, the increasing influence of Gen Y’s demand for higher-quality rental accommodation is creating opportunities for developers to provide hybrid co-living developments,” he said.

The PBSA sector in Australia is backed by major players such as Scape, which recently closed out a $500 million student accommodation fund with backing from two European institutional investors and a Middle Eastern sovereign wealth fund.

Developer Hines Property recently lodged plans for a new $85 million 124.2-metre-tall tower in Adelaide’s CBD that will become the tallest purpose-built student-only accommodation building in the world, notes The Urban Developer.

Intergen Property Group, whose clients include Singaporean-listed investor Wee Hur, is currently overseeing five PBSA projects with a total of 4,500 beds in Adelaide, Brisbane, Sydney and Melbourne.

Savills Conal Newland expects “a steady increase” in PBSA transactions in the short term, which will become the catalyst for a surge of investment into other residential-based asset classes.

Prime net yields in Australia for student housing are high, at 6.75 per cent, but have also tightened as investor demand grows against a backdrop of limited supply, according to the report.

The same drivers are increasing demand for the related residential asset of co-living facilities, which extends to non-student markets.

But Mr Newland warned that Australian lawmakers should be mindful of passing legislation that may reduce the attractiveness of investments.

Proposed changes to the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2018 pose an unintended risk to the growth of Australia’s $8 billion commercial purpose-built student accommodation sector, says the Property Council of Australia.

The changes would see student accommodation classed as “residential” (taxed at 30 per cent) instead of “commercial residential” assets (taxed at 15 per cent), notes the AFR.

“A lot of foreign capital sources are sitting on their hands at the moment waiting for these changes. If they come through then capital will dry up. That will have an impact on supply,” Intergen chief executive Trevor Hardie said.