Australian student housing looks set outperform this year after occupancy levels rebounded and rental levels recovered in 2022.
Savills found that 386,000 international students arrived onshore in the ten months since mid-Dec 2021, with early indications suggesting that this year could echo numbers close to the peak record year of 2019.
The prediction has been supported by visa lodgement figures, which were tracking close to those of 2019.
While large numbers of students were still yet to return, universities and operators have been reporting near full occupancy across student accommodation facilities.
A lack of alternative housing options, due to a reduction of affordable homeownership, changing household formation as well as returning skilled migrant and international student numbers has accentuated the increased propensity to stay in purpose-built student accommodation (PBSA) post pandemic.
Low vacancy levels and rising weekly rentals rates across residential markets corresponded into rental increases across the student accommodation sector in 2022.
For the 2023 academic year, asking studio rents across Sydney, Brisbane and Adelaide were now at record levels, with Melbourne within 2% of pre-pandemic rates.
The structural undersupply of the student housing market in Australia looks set to continue for the next three to four years, given the relatively restricted pipeline of new projects underway.
Increases in build costs and higher debt finance costs have been contributing to lower development profit forecasts in projects and less supply in the near future.
Over the past decade, the years experiencing highest investment volumes also saw large portfolio transactions.
“While there’s been substantial consolidation in the student accommodation market pre-pandemic, we have yet to see liquidity enter the market for single asset sales or portfolio trades in 2022, primarily due to macro uncertainties,” said Paul Savitz, Savills Director of Operational Capital Markets.
“Land acquisition for development remains competitive as developers of multi-family, hotel or residential for sale pursue the same opportunities and building cost inflation, particularly material and energy prices, as well as labour shortages continues to add upward pressure.
“Investors can mitigate these risks is by partnering with experienced developers with consistent track records and a strong handle on their supply chains.”
There were 79,100 PBSA beds available in Australia, with an additional 4,937 beds added in 2022.
Conal Newland, Head of Operational Capital Markets at Savills, said the lower near-term pipeline was a consequence of schemes not moving forward during the pandemic.
“It’s obvious this delivery downturn is a direct result of investor concerns about demand during the pandemic and the ability for the market to return to pre-pandemic levels, as well as feasibility and planning delays,” Newland said.
“Those schemes that did progress are concentrated in the country’s two global gateway cities – Sydney and Melbourne – which will see a combined 70% and 100% of all new beds becoming operational in 2023 and 2024 respectively.”
Savills predicts an extremely strong appetite for student accommodation given the significant undersupply of accommodation in many of Australia’s capital cities and limited near term supply pipeline.
Investment activity in the sector was expected to pick up in the first half of 2023, as macro uncertainties that have driven sentiment in 2022 were expected to dissipate and the market adjusted to new dynamics.
Significant competition for limited opportunities was also expected to help support existing yield pricing.
