STUDIVEST joins us at The Funds Workshop as a guest editor to talk about investing in Purpose-Built Student Housing (PBSH) and why it’s becoming an attractive asset class for investors.
We here at STUDIVEST not the only people who think this is true. AMP Capital’s infrastructure equity team invested in a postgraduate college development at the University of New South Wales, it made a 12% return p.a. for 10 years.
The investment was then sold back to the college and is a perfect example of why student accommodation can be an attractive infrastructure asset class.
The key to this story like most investments is having a strong demand where you are contractually aligned with a university to attract students for the long term. Buying or developing assets without this is a very different risk profile. Although still appealing, it is similar to other property assets.
The main difference between a property and infrastructure asset is the importance and security of the cash flows over other value drivers such as underlying freehold property values. Infrastructure investments with a low risk and return profile generally come with a very high confidence of the underlying cash flows and have significant contractual protections.
Student accommodation challenges this point because structuring the right deal and taking on an acceptable level of risk can deliver attractive returns. Using AMP Capital’s investment as an example; their combined Student Housing portfolio over 12 years was more than 16% p.a., with yield of over 5% during that time.
Is the commerciality of Student Housing getting stronger?
Australia’s international student numbers reached a record high creating increased demand for purpose-built student housing (PBSH). According to Savills, Tertiary education is Australia’s 3rd highest export industry with over 1,000,000 students currently enrolled.
In Australia student numbers increased steadily through the 2000s, then went through a boom in 2010 when the federal government removed regulations that capped university places. University fees are strongly regulated for domestic students therefore many have increased fees for their international students to increase their profits.
This increase hasn’t negatively affected student numbers which have increased, meanwhile development of new accommodation has failed to keep up. Australian universities currently have beds for 10-15% of their students across major cities; apart from Canberra at 30% which is the same level for UK city Universities, according to Savills.
Universities need sufficient supply of quality student housing to meet demand, or their enrolments may suffer. The financial strength and priorities of a number of universities have led some to fund and develop student housing by themselves. In the meantime, some have opted for partnerships with private funding to solve this shortfall and others have been prepared to let the market respond independently to this supply imbalance and rely on private housing.
Interested in reading more? You can check out STUDIVEST’s new website here.