Savills Report Paints a Promising Outlook for the Student Housing Sector Ahead

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Savills, the prominent real estate agency, has unveiled its latest insights in the Australian Student Accommodation 2023 Report, shedding light on the persistent surge in demand for Purpose-Built Student Accommodation (PBSA). According to the report, the demand for student housing (PBSA) remains at its peak and is expected to increase further, outpacing available supply. This trend is exacerbated by a declining vacancy rate and a growing number of international student arrivals.

One key revelation in the report is the anticipation of a significant drop in the PBSA development pipeline over the next three years, with the total count of new student beds expected to decrease by over 50%. This marks a sharp contrast to the figures from the previous three years. Paul Savitz, Director of Operational Capital Markets at Savills, notes,

“An all-too-familiar imbalance of demand over supply is continuing to fuel strong annual rental growth in student accommodation over the short term, which we anticipate could, in some markets, still be double-digit in 2025.” Savitz stated.“We anticipate that investors will continue to back student accommodation due to the capacity for rents to keep pace with inflation.”

This echoes the report’s projection of a sustained increase in demand, with investors showing a particular interest in Macquarie Park in Sydney’s northern suburbs over traditional inner-city areas.

Despite challenges such as construction costs and debt-related obstacles hindering the delivery of new accommodations, PBSA continues to attract investors. This is evident in recent transactions like Blackstone’s acquisition of the Student One portfolio, underscoring the counter-cyclical benefits and robust returns offered by the sector.

The influx of student visa applications in Australia had already surpassed the levels of any preceding year (exceeding 2019 figures by 5% for 2022) even before policy adjustments. The rapid resurgence of international students has taken numerous universities off guard, underscoring the pent-up demand and eagerness among students to resume studies in Australia. Notably, visa applications for Higher Education in Australia, as of the ten-month mark in 2023, have surged by 15%, surpassing the total recorded for the entire calendar year 2022. Moreover, they are already 18% higher than the cumulative figure for the entire calendar year 2019.

International Student Visa Applications - Savills Student Housing Report 2023
International Student Visa Applications – Savills Student Housing Report 2023

The report also forecasts steady rental growth in major cities, singling out Sydney as expected to outperform others over the next five years. Brisbane has experienced the most significant rental increase in the past two years, and while growth is projected to slow from 2026 due to new supply entering the market, it is expected to remain significantly above historic rental trends.

International student arrivals to Australia have surged by 88% in the year to September 2023, a trend attributed to universities resuming in-person course delivery and favourable currency exchange rates for overseas students. Savitz explains,

“This boost in international student arrivals comes after Australian universities advised a return to in-person course delivery this year, with the Chinese government also requesting its students to return to destination universities.”

International Student Arrivals Projection - Savills Student Housing Report 2023
International Student Arrivals Projection – Savills Student Housing Report 2023

Despite the ongoing demand, there is a supply-demand imbalance, with pent-up demand for student accommodation prevailing across major towns and cities. Private investors are anticipated to play a crucial role in driving PBSA growth, as universities face limitations in delivering on-campus accommodations. Savitz points out,

“The decisions, resources, and outlook of private investors will, therefore, drive PBSA growth, and these investors must navigate economic, planning, and delivery challenges, respond to shifting student demographics, and also champion environmental sustainability.”

A significant shift is observed in the supply pipeline, with Sydney and Melbourne losing their prominence to other locations. Savills expects a more balanced distribution of new student accommodation away from the global gateway cities. Savitz emphasizes,

“Land values in amenity-rich locations close to universities and public transport have maintained their value, impacting on the feasibility of schemes alongside build cost inflation and planning delays.”

The Savills student housing report highlights the changing economic landscape in Australia, emphasizing the need for careful investment consideration in the short term. Investors are turning their focus to high-yield locations, such as Sydney’s Macquarie Park, where over 1,200 student beds are slated for completion by 2026. Despite ongoing barriers to development, the positive growth outlook for PBSA remains strong, with the sector maintaining its appeal to investors amidst economic uncertainties. Conal Newland, Head of Operational Capital Markets, underscores this, stating,

“Unlike many other real estate sectors, rents can be rebased every six months, or even every semester – keeping pace with inflation and adapting to a shifting economic environment.”

This, Newland notes, will maintain the comparative attractiveness of the sector for investors and may lead to a further rebalancing of real estate portfolios toward residential assets like PBSA.

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Note: The information presented in this article is for general informational purposes only and should not be relied upon as legal, financial, or professional advice. While we make every effort to fact-check and verify the information presented, we cannot guarantee its accuracy or completeness. Readers are encouraged to independently verify any information they find on our website and to consult with relevant professionals before making any decisions based on the information presented. The Australian Development Review does not own the rights to the information included within this article, and furthermore, there is no infringement intended from the included text and images within.


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