Should you invest in student accommodation? Australian university cities Sydney, Melbourne and Perth see real estate investors flock to lucrative PBSA property as pandemic restrictions ease
- Conal Newland, Savills’ head of operational markets for Australia and New Zealand, reports renewed interest in purpose-built student accommodation (PBSA)
- The major cities launch new co-living projects from the likes of UnliLodge, Iglu and Scape, as international students come back after borders reopen
After years on the sidelines as an alternative asset class, the purpose-built student accommodation (PBSA) sector had finally earned its place in a diversified real estate portfolio.
Along with build-to-rent multifamily, health care and senior living facilities, student accommodation was deemed to generate long-term, stable income returns. The countercyclical nature of the sector was also seen as a positive: student numbers tend to increase during economic downturn as people look to upskill while they wait for the job market to rebuild.
With international education Australia’s fourth-largest export – and Victoria’s largest – the prospects looked rosy. Institutional players became active in the market, while individual investors were drawn to the low entry point and attractive returns promised for units targeting students.
Hong Kong investor Angela Wong was one. Between August 2014 and December 2016, Wong built a portfolio of 10 units in a building opposite two universities on the Sydney CBD fringe, paying HK$1.05-1.44 million for each.
“Occupancy rate at one point was 98 per cent,” she says. Even after fees were deducted, the returns yielded 5-6 per cent.
Pandemic hits PBSA
Then came Covid-19, and foreign students disappeared. For nearly two years the building lay empty, while the owners were hit with skyrocketing bills for repairs and maintenance deemed to be necessary by the new strata managing agent. Levies which Wong had once deemed to be “reasonable” increased tenfold, rendering the units “unsellable” according to Mark Roberts, a property agent at McGrath.
Despite the challenges facing the sector that this example illustrates though, a recent report by Savills outlines optimism for the sector, projecting that both occupancy and returns in PBSA are poised to bounce back.
“From an operational perspective, 2021 was a tough year,” agrees Conal Newland, head of operational markets, Australia and New Zealand, Savills, who deals solely with institutional investors. “A number of students who left to go home for the Christmas holidays could not get back after the Australian border closed. We saw accommodation levels drop to 25-30 per cent.”
“Allowing tenants to intermingle in common areas is also a key to success where casual interactions can help foster a strong sense of community in the building.”
To minimise the impact on investors, operators looked closely at the running of buildings with a view to cutting variable costs, he continued.
By Q3 2021, Newland was buoyed to see that in the US, being further ahead on the Covid-19 curve, the PBSA sector was “rocketing back” – a pattern he has seen repeated since mid-December when international students were allowed back into Australia. By February 22, 2022, according to a federal government press release, around 30,000 international students had returned in the six weeks since borders reopened to them.