The largest-ever student housing deal in Australia this month signalled the sector has moved firmly into the mainstream of commercial real estate.
Student accommodation specialist Scape Australia acquired the Atira Student Living Platform with the backing of Allianz Real Estate and AXA Investment Managers-Real Assets. The deal earned Scape its mantle as the country’s biggest student accommodation provider.
“Investors are hunting for scale in an increasingly tight market. Five years ago in Australia you wouldn’t have found it in student housing,” says Noral Wild, Head of Alternative Investments, JLL. “How times have changed.”
Demand from institutional investors for student housing and other alternative real estate sectors has boomed in recent years. Scape’s new portfolio includes six operational student accommodation buildings in Adelaide, Brisbane and Melbourne, including 3,510 beds.
Portfolio to be Part of Core Fund
The portfolio will seed a new core fund that will be backed by Allianz and AXA for total equity capacity of A$1.5 billion.
The acquisition also includes three development properties, in Melbourne, Perth and Sydney, which will be moved into a separate fund backed by Allianz Real Estate, Bouwinvest, German-owned Luxembourg fund WPI, a Middle-Eastern sovereign wealth fund, and the founders of Scape’s Australian arm, Stephen Gaitanos and Craig Carracher.
“From a time when there was no PBSA market in Australia, no capital to support investments and only three off-campus commercially owned assets in the country, the sector has transformed to offer the Australian education industry an extraordinary advantage in the global market for international education,” Carracher said in the Australian Financial Review.
Increased interest in Australia has moved the purpose-built student accommodation (PBSA) sector from its development cycle into an operational phase, says Stuart McCann, Head of International Capital for Australia, JLL.
“We’re seeing the opportunistic investors who acquired sites and developed large portfolios of premium purpose-built student accommodation portfolios in Australia over the past five-to-10 years beginning to sell out of their platforms,” he says.
“The Atira process has demonstrated deep demand from the global capital markets to acquire portfolios of scale and we expect to see more major transactions.”
A Changing Landscape
The investment landscape for student accommodation is being redrawn. Capital backing from pension funds and investment giants such as AXA, Allianz and GIC has led to more purpose-built four and five-star central city accommodation, usually fully furnished and including all utilities and services.
They are filling a gaping hole left by the traditional provision of boarding school-style settings in sandstone universities, and the cheap digs sold off as strata units then rented to students in Sydney and Melbourne in the late 20th century.
Along with other ‘living sectors’ such as aged care, co-living, multifamily, and senior living, PBSA is providing a stable and lucrative investment alternative to traditional residential units, according to JLL’s Asia Pacific The Living Sectors report.
“The whole concept is not about selling down units,” says Wild. “The developer retains ownership, giving them full ownership of prime CBD property and land with a steady rental income from students, of whom approximately 80 percent are from overseas and the remainder usually from regional Australia.”
Globally, PBSA transaction volumes have increased five-fold over the past 10 years, with the U.S and UK dominating the field.
However, the proportion of deals is expected to shift towards Australia and Asia in the future as their markets mature and Brexit leads to investor caution in the UK.
The sector’s growth in Australia can be put down to its A$30 billion-a-year-and-counting higher education international student market, which increased by 14.3 percent in 2018.
China, India and Nepal are the largest sources of international students to Australia, attracted by the country’s affordability thanks to a lower Australian dollar, and the excellent global reputation of its universities.
Though Australia’s strong supply pipeline (by December 2022, the number of PBSA beds is expected to reach over 100,000) has caused oversupply speculation, demand will continue to fuel the sector as it continues to outgrow supply levels, says Wild.
“As well as Australia being an economically viable choice, a combination of factors are also benefiting the market, including the quality of Australian universities, growth in the number of students and the diversity of students requiring accommodation, increasing applications and approvals of student visas, and the rising wealth of students,” she says.
Wild adds that there is also considerable scope for the sector to grow its market share.
More to Come?
This year could bring yet another major portfolio deal, as the market focuses on the sale of 15 assets by Urbanest, including nearly 7500 beds in prime CBD locations.
Student accommodation in central locations are highly valuable due to the scarcity of land to build new developments.
“Lifestyle and convenience are important to students and so location is key,” says Wild.
Click to read about why a new mode of retirement living has become a magnet for investors in Australia.
This sponsored feature is provided by JLL China