Rolling international border closures robbed the purpose-built student accommodation sector of paying tenants overnight.
Australia’s education sector will have lost 300,000 international students by the middle of this year (a drop of around 50 per cent) according to modelling from Victoria University’s Mitchell Institute.
Analysis of the international student crisis across Australia’s cities shows that every major city is experiencing a loss, although in different ways.
In Melbourne, it is the central city experiencing the greatest loss, while in Sydney the reduction is more evenly spread across the city.
This drop has forced a collaborative rethink between developers, owners, operators and tertiary institutions to explore how to manage this new challenge.
It also has developers pondering what the future holds for this relatively new market in the real estate sector.
But despite the restrictions and downturn, student housing has been building momentum as investors plough millions of dollars into new developments as market leaders put their money where their mouths are and insist the sector will simply be a slow burn due to the pandemic.
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A group of University of Sydney-owned terraces on Darlington Road are undergoing a $40-million refurbishment after getting the green light from the NSW government.
The project will provide single- and double- room accommodation for 336 students and visiting academics. Work is to begin immediately.
Scape Australia recently received $300 million in equity investment from an unnamed investor, joining Allianz Real Estate, APG and AXA Investment Managers as among the core fund’s investors.
Last year, it announced that five new futuristic buildings worth $300 million are to be delivered in Sydney, offering more than 1650 rooms for incoming students.
Despite the investment, managing director Stephen Gaitanos told The Urban Developer that just 25 per cent of its 15,000 bedrooms open in cities across the country are occupied.
But even with the low tenancy levels, Scape has pushed ahead with ambitious development plans, building a further 10,000 rooms in Sydney, Melbourne and Brisbane, which will all be complete by 2023.
“Some buildings have better occupancy rates than others,” Gaitanos said.
“Brisbane and Adelaide are doing the best. Sydney and Melbourne are our two biggest markets, and they are both drastically underperforming due to Covid.
“This cohort of students are very amenable to living in these buildings.
“But they sit empty, and we’ve got no choice but to accept that fact.
“But with an election looming and the current attitude toward allowing tourists or students into the country for fear of them carrying Covid-19 is making it difficult to see our occupancy rates rise in the near future, which is frustrating.”
He said that Scape was also watching how the federal government navigated the geo-political tension brewing with China and other countries, which could affect enrolment numbers in Australian universities.
Considered an alternative asset class a few years ago, this sector has become mainstream given there’s nearly $3 billion of assets in the Australia market, a market that is ranked as one of the leading higher education destinations in the world.
The sector has perfected the brief in recent years, bringing online the ideal safe, secure and affordable accommodation for students.
It provides nearly 100,000 beds with the sole purpose of providing students accommodation during their education journey.
Insights from real estate service provider Savills shows that the market will improve into 2021, with investor interest and transaction volumes continuing to accelerate during the past 18 months.
Demand for this asset class is expected to be supplemented by domestic students who are unable to study abroad and instead will remain in Australia. It also predicts stunning growth, exploding into a $50-billion sector by 2025, up from $27 billion last year despite the pandemic, the Savills report found.
It said that a significant number of global investors were recognising the value offered by a sector with such strong underlying fundamentals.
Despite all this, Prime Minister Scott Morrison has reiterated that it won’t be safe “for some time” to reopen international borders, and that the process of reopening will be gradual. Students won’t return until 2022 at the earliest under current plans.
However, New South Wales is fast-tracking a plan to bring international students back in the state within months with a 600-bed student accommodation site approved for conversion into a quarantine facility.
Victoria, meanwhile, is waiting on federal-government approval for plans to gradually reopen the international education sector, which would mean an influx of 120 students per week through a dedicated quarantine centre.
A decision on the new quarantine hub, that it wants the Commonwealth to pay for, will be made in September.
The federal budget snubbed the university sector this year after a $1 billion boost for research to compensate for lost international student revenue last year.
The Morrison government suggested the sector needs to be less reliant on international students, with some suggestions that universities have a bleak future.
A lifeline of sorts came from the NSW government in the form of a tender to accommodate international students quarantining after returning to Australia. The outcome of the tender is expected to be known soon.
The document reveals that international education is the state’s second largest export, generating $14.6 billion annually before the pandemic and employing 100,000 people in NSW. It also estimates that the state has lost a third of its international student base in 2021.
Scape has considered an alternate use for its assets but admits that repurposing student accommodation for other uses is tricky. It wants to open its student accommodation to essential workers and interstate travellers as it waits for international students to return to the country.
Scape also applied for a temporary change of use for its Atria South Brisbane property until the end of February 2023, which would provide accommodation for none-students in the 88 Ernest Street building.
Scape has also launched a new CBD living space in Melbourne’s CBD at Aurora, Scape Living. These reimagined student spaces and services would enable the company to test a new market in the interim.
While the rest of 2021 and into 2022 will be tough for the sector, Gaitanos predicts that 2023 and 2024 will ramp up.
“Essentially, 2022 will be a recovery year, but we believe that things will improve from there. We’ve invested in the sector, and we’re here for the long term,” he said.
“The fact is that our business relies on international human mobility.
“I believe in Australia in terms of where to deploy the capital we do very well after these events, whether it be SARS, Bird Flu, Swine Flu, or the GFC, and that our recovery as an asset class will be swift.
“We truly are the lucky country, and the wonderful thing is Australia recovers from these events well.”
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