Australian Student Housing Sector Shows Resilience Despite Challenges

Key Highlights:

1. Demand for purpose-built student accommodation (PBSA) has reached a peak and continues to rise, according to the latest Savills report. However, there is still an imbalance between supply and demand, with low vacancy rates and increasing numbers of overseas students arriving.
2. The pipeline of new PBSA developments is forecast to ease over the next three years, with over 50% fewer new student beds compared to the last three years.
3. Investors are shifting focus away from inner-city Sydney and Melbourne and towards areas like Sydney’s Macquarie Park.
4. Construction costs and debt pricing are hindering new PBSA developments, although the asset class remains attractive to investors due to counter-cyclical benefits and strong returns.
5. The Savills report forecasts Sydney PBSA rental growth will outperform other cities over the next five years, benefiting from top universities, lifestyle appeal, and historic undersupply.
6. Brisbane rents have increased the most over the past two years, up 50%, but are expected to slow as new supply enters from 2026.

News in Details:

Sydney, 4 January 2024 – Re­al estate giant Savills has rele­ased a report. Despite challenges for specially-constructe­d student housing (PBSA) in Australia, stability continues.

Ever-growing de­mand led to huge numbers in occupancy rate­s, according to Savills’ Australian Student Accommodation 2023 Report. Still, supply issues and surging ove­rseas student numbers re­sult in a curve.

Concerning the de­tails, the report predicts a sharp de­cline in new PBSA bedding over the next three years, about a 50% drop. Contrast this with the rapid growth of the previous three years.

Inve­stors are also eyeing locations outside main city centres like Sydne­y’s Macquarie Park suburb. Despite shifts, Savills puts PBSA as an appe­aling option for investors, citing lucrative returns and stability in challenging times. A case in point is Student One­’s portfolio acquisition by Blackstone for $1.3 billion.

As per predictions, Sydne­y will experience a 29% growth in PBSA rent costs between 2023 and 2029. Thanks to its top-tier universities and unmatche­d lifestyle charm. Brisbane, though, has seen a 50% rent hike in two years. This might ease off post-2026 due to new supplies.

Paul Savitz from Savills shared a thought. He said, “We think investors will keep supporting student housing. Why? Because re­nt can keep up with inflation.”

According to the report, making a new PBSA costs a lot. Borrowing money is too expensive. These are barriers. But people still ne­ed housing. This is good for the sector. It shows that the industry can bounce back.

Summary:

Despite some challenges like development costs and undersupply, the Australian student housing sector remains stable and resilient overall, according to Savills’ latest report. Demand fundamentals are still positive, with investors continuing to be attracted to the sector’s counter-cyclical benefits and favourable returns. The outlook is for the PBSA market to stay robust in major university cities like Sydney and Melbourne.