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Australian funds to form second wave of student housing investment: Knight Frank

November 28, 2017

More of this to come: Render of Scape's planned student accommodation development on the CUB site on Melbourne's Swanston Street. Photo: Supplied

Australian super funds and insurance companies will enter the student accommodation business when the current wave of development is over and housing portfolios are established and operational, a new Knight Frank report into the fast-growing business says.

For the next three to five years, however, investors with experience of developing and setting up housing for the fast-growing student market will dominate an accommodation sector in which Australia lags other countries, says Knight Frank’s Student Housing 2018 report.

“Australian super funds are probably waiting to see if this whole development phase becomes stabilised and operational before they jump in,” said Knight Frank research and consulting director Paul Savitz. “Once the market settles down and this new supply becomes operational, starts becoming stabilised and high occupancy is reached, then Australian super funds and insurance groups will look to the market.”

Student numbers are growing, aided by a simplified student visa framework that took effect in July last year. Education department figures show overseas student enrolments jumped 7.7 per cent last year to 391,136 compared with the slower 1.8 per cent rise that took the number of domestic students to 1,066,073.

Growing need

That’s creating an increasing need for accommodation. The Knight Frank report said that there were 337,117 full time higher education international students studying in Australia in the 2016 academic year and just 93,890 purpose-built student accommodation bedspaces at the end of 2017, making for a theoretical international student to bed ratio of 3.6:1, the report said.

The players undertaking the initial development wave to meet this growing demand were international groups such as Atira, Scape, GSA, Iglu, Wee Hur, Student One, Cedar Pacific and Centurion, the report said. They are also starting to extend their product offering, as provider Scape is doing – with the backing of Dutch pension funds Bouwinvest and APG – with developments such as on Melbourne’s Swanston and Franklin streets, where it is incorporating commercial rental stock targeting a market of post-study young professionals.

The evolving sector – and the prospects for growth of the Australian market driven by harder-line immigration environments arising out of Brexit in Britain and Donald Trump in the US – would attract the next wave of investors, the report said.

“We expect to see new entrants enter the market, with Australian Superannuation funds likely to become interested, alongside other global investment funds,” it said. “It is also anticipated that there will be a blending of the [student accommodation] and build-to-rent/multi-housing sectors, with groups targeting a longer life cycle of their occupants.”

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