Article | Intelligent Investment

Understanding the investment opportunities of purpose-built student accommodation

What edge does purpose-built student accommodation retain over residential rental property? The experts explore the sector’s true potential.

December 20, 2023

The image shows an aerial view of a group of three students walking down a staircase at a university.

As international student migration numbers begin to increase in Australia post-pandemic, there’s been a direct impact on the alternative asset class known as purpose-built student accommodation (PBSA).  

CBRE research indicates that there are currently around 60,000 purpose-built student accommodation beds across the country, allowing students to live on or near university campuses. This limited number of student accommodation comes at a time when the sector is also facing the same supply crisis being evidenced across Australia's broader housing market. 

What are the market experts forecasting? Just 8,000 purpose-built rooms will be delivered across Australia between 2023 and 2026, with demand expected to well outpace supply.  

This drives the crucial question of what the investment opportunities look like for PBSA in Australia. Helping to answer this question is an experienced panel including Anouk Darling, the CEO of Scape – one of Australia's largest student accommodation owners and operators; Alex Crossing, the Asia Pacific Regional Head of Indirect Private Real Estate at CBRE Investment Management; and CBRE’s Pacific Head of Research, Sameer Chopra.   

PBSA vs residential rental 

Addressing the most common criticism of PBSA in Australia today revolves around understanding the reason behind the rental discrepancy for students.  

“PBSA at the moment gets criticised as it gets compared to the residential rental market,” says Darling.  

“They'll see private student accommodation, say a studio apartment with an average weekly rent of $518 nationally. Then they’ll look at the residential market and say they could rent a room for between $200 and $300. They need to understand that they're now just renting a room and nothing else.”  

For companies like Scape, the benefits of PBSA can far outweigh the typical rental properties on the market. Such benefits for students can include 24/7 pastoral care and the critical element of cultural assimilation. There’s density checking, door activities, wellness trackers for students, Wi-Fi, utilities and everything else that falls under the PBSA umbrella.  

“There's nothing that is comparable to a residential rental experience across PBSA,” explains Darling.  

“We also have programs like Scape’s Got Talent, which assists students into the workplace if they need to have secondary jobs outside of university. And we have a huge amount of technology overlay in our buildings - across the portfolio there's almost 2,000 cameras where we are making sure that no one's coming in who’s not meant to be in and that the students are safe. 

“I don't think you can price the value of that safety and security along with the experience that we bring.” 

Investment opportunities in PBSA 

When it comes to investment opportunities in PBSA, Chopra believes that the Australian market is deeply unpenetrated.  

“We've got one purpose-built student accommodation bed for every 16 students out there,” he says.  

“To put that in context, in the UK there’s one bed for every two to three students. The Australian market can quadruple to broadly match what the UK looks like.” 

While there is incoming PBSA supply for the country, it currently only stands at seven percent of the existing stock which isn’t enough to impact the supply versus demand situation. 

“Median rents for student accommodation studios grew at CAGR 5.5% from $406 per week to $530 per week over 2018-2023 across Brisbane, Melbourne and Sydney markets. 

“And whilst pricing yields have expanded by about 30 basis points off their circa-22 basis points, it's showing up to be quite resilient in the face of increasing interest rates.  

“I definitely see strong interest from capital that wants to participate in student accommodation.”  

Crossing is a specialist in the CBRE Investment Management division which began looking at the Australian PBSA market in 2018 and entered it in early 2019.  

“Looking at the Australian market, we thought the supply and demand fundamentals were interesting and the sector was similar to the UK PBSA market 10 years ago, before it was seen as an institutional asset class and cap rates were still relatively high. The metrics made a lot of sense because of the low supply provision rates.  

"The demand story was very strong, and we saw attractive spreads between yield and costs for our developments and in-place cap rates,” she says. “Since then, the cap rates have compressed as well. So, there are a lot of interesting drivers that indicated to us that this would be a good time to come into the market.  

“It's very strong from an occupier fundamentals perspective as well as from the supply side, which has been relatively limited. Australia, China and India are some of our biggest markets for PBSA.”  

Darling has her own diagnosis on the PBSA market which has seemingly gone from ‘zero to hero’.  

“We've got domestic student mobility, we've got the student enrolment migration numbers lifting, we've got the lowest vacancy rates on record. And now we're looking at a sector that's got top line rental growth roughly outpacing inflation.  

“It absolutely is an exciting time to be here, and the sector is pretty full. I think right now we have been sling-shotted from a very treacherous position of nearly empty over two years of lockdown, to now being at 98% capacity.”  

Australia’s unique drawcard 

Australia’s geography on the world map lends itself to some unique benefits when it comes to PBSA. Student security and geopolitical risk being the two significant factors.  

“Having just returned from China a few weeks ago and meeting with all the leading aggregators and independent agents who place students, the demand profile is not slowing and absolutely there,” says Darling.  

“Australia is still up there; our university rankings are lifting and that makes us highly attractive, and Australia is still seen as a very attractive and safe place to send students. We know from our research that for parents, the number one issue is safety and security. 

“For the students, it’s about how good is the experience going to be for them? We have buildings that have amenities including state of the art gamers’ rooms, recording studios for podcasting, soundproof music rooms with mixing desks and musical instruments all provided for them.  

“But most importantly we've got 114 different nationalities that live with us across our portfolio. We have a huge amount of cultural awareness, assimilation and events and activities where kids can socialise and meet each other in a way that's safe.  
“The bonus is that they can learn respect for different cultures, respect for different people. And it’s bringing everyone together, which is highly unique.”  

Student accommodation in the spotlight

Exploring the outlook and growth potential for one of Australia’s most dynamic alternative asset classes.

The image shows two students discussing a project near a sunlit  window on a university campus.