Despite challenging operating conditions with the onset of the COVID pandemic, the Australian student accommodation market is set to record over $3bn in transaction volumes in 2020.
Sentiment remains strong for investment in 2021 with the anticipated easing of international border restrictions in Q2 allowing international students back into the country by Semester 2.
According to data from our recent Australian Student Accommodation 2020 report, rental levels look set to remain relatively static in 2021 and occupancy across off-campus properties is expected to stay in the range of 50 – 70%.
The report highlights how investors’ focus on student accommodation has been growing over the past decade. Strong underlying fundamentals, stable income streams, and the desire to diversify portfolios have significantly increased investor appetite for these assets.
How has COVID affected the sector?
The operational residential sector’s fundamentals hold true in today’s challenging macro environment
Students still require a place to live, and demographic trends and affordability constraints will continue to drive demand for rental accommodation. Total global investment into student accommodation reached US$18bn in 2019, a new record.
Consolidation has been a key driver in the student accommodation sector in Australia, which has registered record investment volumes for 2020, forecast to total AUD$3.1bn, an increase of 115% on 2019 levels.
Scape has been the most active investor acquiring the Urbanest portfolio at a purchase price reportedly over AUD$2.1bn in the biggest deal of the year and now has a portfolio of over 12,500 beds and a pipeline of nearly 10,000 beds.
Opportunities exist for further supply of accommodation in all capital cities with diversification of product mix a key point of differentiation
The COVID pandemic has brought near-term challenges for the University and PBSA sector and International students have borne the brunt of the disruption from travel restrictions imposed in March 2020.
However, COVID has accelerated a number of trends which Savills has identified as the pivot towards a Third Stage of the market emerging in 2021. It is anticipated to include diversification of product mix and targeted growth into second tier markets.
Pipeline and development across Australia
There are now 109,000 beds across the Australian student accommodation market; 84% of all beds are located across the eight Capital Cities. 2020 saw the lowest level of new completions in over a decade with 1,025 new beds entering the market following a record year of development in 2019.
In anticipation of improved trading outcomes, a number of schemes delayed their openings until Semester 1 2021. As it currently stands there are over 13,200 student accommodation beds under construction.
2021 is on track to see 9,775 new beds enter the market. Irrespective of rising bed numbers, the provision of student accommodation beds across the Australian Greater Capital Cities remains substantially lower than global benchmark cities.
As an example, 36% of all full-time students in London have access to a student accommodation bed, whilst that figure is just 8% in Sydney.
The increasing supply coupled with lower yields and higher values has helped contribute to the estimated total value of the sector more than doubling in the last five years to $27bn.
Looking forward to the end of 2025, Savills is forecasting the value of the Australian student accommodation sector to nearly double again, reaching $50bn.
Download the full report.
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