Purpose-built student accommodation ‘set to rebound’ in Australia

Australia will scale up construction of student accommodation despite political uncertainty, escalating costs and a return to earth of skyrocketing rents, according to property agency Savills.

In a new report, Savills says 16 housing blocks currently under construction will provide 8,770 new student beds over the next three years, with well over 3,000 more in other projects that are “fully funded and committed”. Sydney will be the “standout performer” with 4,300 new beds mainly serving Macquarie University and UNSW Sydney.

Brisbane will gain almost 3,200 beds after a “five-year hiatus” in new purpose-built student accommodation. Melbourne will acquire 1,500 new beds in 2027, while Perth will see its first new student accommodation since 2022.

Savills says the industry has rebounded from its Covid slump, although development remains well below the frantic levels of 2018 and 2019. The report says there has been a “notable increase” in discussions between universities and private developers this year, as educational administrators recognise that their allure to international students is “closely tied” to accommodation availability.

Conal Newland, head of operational capital markets at Savills Australia and New Zealand, said the Australian rebound was part of a global trend. A “more favourable macroeconomic backdrop” next year will drive a 23 per cent increase in investment in student accommodation around the world, he said.

The report says “robust rental growth” has underpinned the recovery of purpose-built student accommodation in Australia. Since 2022, rental rates for student accommodation have experienced compound annual growth rates of about 20 per cent in Perth, 16 per cent in Brisbane, 10 per cent in Perth, 7 per cent in Adelaide and 6 per cent in Melbourne.

“Rental growth over the past three years has been crucial to building investor confidence, offsetting feasibility challenges caused by escalating costs for construction, financing and operations,” Mr Newland said.

However, the report says rental growth will be “closer to the historical trend” over the next five years, while skill shortages and high building material prices continue to increase the cost of construction.

Operational costs have risen by an average of 23 per cent per bed each year since 2022, interest rates remain high and “investor confidence” was shaken by proposed international enrolment caps, the report says.

Nevertheless, it says student accommodation remains “significantly undersupplied” in the key Australian cities, both in volume and variety. “We anticipate that developers and investors will continue to explore new locations in key markets driven by transport connectivity and proximity to student-focused amenity,” it says.

“The sector will evolve to include a variety of arrangements between education providers and accommodation providers, ranging from marketing agreements to long-term leases.”

The report says student demand remains strong despite a “year of instability” and “political posturing”. The “natural flow” of international students leaving Australia after they finish their courses will moderate universities’ impact on net migration – although migration will be “front and centre leading up to the next election”, the report concedes.

It says properties “in the development pipeline” have an average of 540 beds, compared with 498 at existing student accommodation blocks. “This highlights the growing demand for larger schemes and a desire to achieve scale.”

john.ross@timeshighereducation.com