Investment opportunities in Australia’s student accommodation sector revealed

The current undersupply points to strong fundamentals for rent and occupancy. 

According to Dexus Research, Australia’s tertiary education sector is poised for significant growth, placing emphasis on investment in more infrastructure, including quality student accommodation. 

An undersupply points to opportunities for investment in the student accommodation sector. 

Here’s more from Dexus Research:

International student enrollment has rebounded strongly, surpassing pre-COVID levels. Visa applications have surged, totaling 273,586 in the 2023 financial year, up 32.4% from the pre-Covid financial year 2019. Further, enrolments in higher education have increased by 10% in the year to January 2024 compared to the same period in 2019. Victoria and Queensland saw the largest growth. A recent tightening of Federal Government immigration policy was mainly targeted at vocational education. Universities are unlikely to be impacted. 

The challenges posed by the COVID-19 pandemic and rising interest rates have led to a shortage of housing in Australia. In the broader housing market, CBRE projects that there will be a deficit of 377,000 dwellings over the next five years to 2028. Student accommodation also has had a chronic undersupply across the capital cities, with near full occupancy across the markets and double-digit rental growth heading into Semester 1 2024. 

Additionally, both on and off campus operators are reporting rebooking rates are now running at 40-45%, up from 30% in prior years. This undersupply points to strong fundamentals for rent and occupancy. 

Across the top private sector managers in Australia, there were 57,434 operational on and off campus student accommodation beds within 115 properties at the start of Semester 1 2024. 

Higher barriers to development will mean the delivery of new student accommodation will be subdued over the next three years. Savills forecast 7,770 new Purpose Built Student Accommodation (PBSA) beds, across inner city locations in Australia’s capital cities, to become operational over the next three years. This is a 52% decline compared to 2021-2023. 

The sector has attractive characteristics for investors including strong counter-cyclical features that will help achieve consistent returns. Additionally, the short-term nature of leases means rents can be rebased keeping pace with inflation and adapting to the economic environment.