Australia’s Purpose Built Student Accommodation (PBSA) sector is facing a supply shortfall, with demand likely to outpace the stock of rooms being delivered.
In an Accommodating the Growth in New Students report, CBRE highlights that an incremental 8,000 PBSA rooms will be delivered across Australia over 2023-2026 – representing a 7% uplift.
However, CBRE’s Pacific Head of Research Sameer Chopra said a rapid recovery in international student enrolments coupled with a continued supply squeeze in Australia’s private, inner-city rental markets, was expected to result in a supply demand imbalance.
“As at April 2023, international enrolments were just 6% below the pre-COVID peak. While enrolments do not directly equate to accommodation demand, as students may be enrolled in multiple courses or in some cases studying online, there’s a clear trajectory of demand,” Mr Chopra said.
“Set against this, just 8,000 new PBSA rooms are in the pipeline, which is likely to be inadequate, with new PBSA supply significantly higher in other global cities such as Paris (18,000 rooms) and London (15,000 rooms) over the same time-period. Compounding Australia’s supply issue is the fact that vacancy in alternative inner-city apartment stock is forecast to stay sub 2%.”
CBRE’s report highlights that Melbourne comprises 36% of Australia’s national PBSA stock – aligning with the city’s larger share of university students, particularly its international student cohort.
However, Sydney is estimated to have the largest development pipeline and could account for nearly 50% of new room supply over 2023-26.
Recent new supply announcements include the University of NSW’s partnership with Iglu to develop 1066 apartments across five buildings opposite UNSW’s Kensington campus, with Wee Hur planning 411 beds to service the University of Sydney and University of Technology Sydney (UTS).
Elsewhere, Brookfield and Citiplan have plans for 935 Brisbane beds near the Queensland University of Technology (QUT) as well as 465 beds in Carlton close to the University of Melbourne. Also in Carlton, Scape is planning a 465-bed PBSA project.
From an investment perspective, CBRE’s report highlights that rent growth and resilient occupancy have helped to cushion PBSA yields on a global basis in the face of rising financing costs,
In the US and UK, yields have expanded by circa 30 bps off mid-2022 lows. In Australia, cap rates are likely to be 50-75bps over comparable build-to-rent product as transaction activity begins to increase.
CBRE Director PBSA Valuations Rosie Young, said activity to date had been relatively limited as the market was still in a ramp-up phase in Australia and stabilised, operational assets were tightly held.
However, there was clear investor demand, underpinned by the sector’s strong fundamentals. This includes significant rental growth, with CBRE’s report highlighting that like-for-like PBSA studios have recorded high teens rental growth over the past five years.
Ms Young said PBSA assets were also viewed by many investors as a hedge against inflation, with education and housing tending to be the last areas that people cut back on when living costs rise.
“Student accommodation is quite counter cyclical, so when other property asset classes start to slow, the PBSA sector continues to perform well,” Ms Young said.
“The sentiment is very positive and we’re seeing considerable interest from investors looking to redeploy capital out of the traditional office, retail and industrial sectors into the living sectors, namely PBSA and build-to-rent.”
Capital commitments to the sector have also strengthened, with Ivanhoé Cambridge committing upwards of $750 million to Scape Core Program – a venture that holds the largest student housing portfolio in Australia with 27 assets and 13,000 beds.
Read the full report here.