Rebounding Student Accommodation Draws in Foreign Investment

Foreign investors are looking at the Australian purpose-built student accommodation sector as a hedge against rising inflation in much of the developed world, industry leaders say.

Chief executive of Brisbane-based Cedar Pacific Bernard Armstrong said offshore investors were reacting to strong occupancy rates across the board in Australia’s PBSA.

Armstrong was one of 15 sector experts to address The Urban Developer’s vSummit on the future of PBSA in Australia.

“Occupancy, which has been very strong this year, has meant the demand from offshore investors coming down to Australia has been very steady this year,” Armstrong told the summit.

“It's hardly a week goes by that we're not getting contacted by some group looking to purchase assets or a portfolio. And that includes agents and individual groups.”

Armstrong said most of the investment in the sector was coming from offshore.

“The Australian investors in general still struggle with the concept of how the leasing works with student accommodation,” he said.

“But when you look at the US and you look at the UK, there have been some massive portfolio transactions this year. Blackstone, for example, has gotten into it in a big way. And they made a very strong statement about how this asset class is a defensive asset class for rising inflation.”

Just this week the Canadian investment giant Brookfield announced it would make its first foray into Australia’s PBSA sector with plans for a 400-bed building on the Melbourne city fringes.  

Armstong said that capital—particularly pension funds which were growing every year—were looking to markets such as Australia, because of its diversification and its distance from current conflict.

“And the economics are strong for the country. So they are asking, ‘How do we get some exposure to that?’.

“And this asset class works very well for that, particularly because of the nature of the inflation protection.”

▲ The summit heard Australian Purpose-Built Student Accommodation assets are typically tightly held, and transactions are rare.

Wee Hur Capital chief executive Wee Ping Goh agreed, telling the summit, “What I feel is that although risk-free rates are climbing, PBSA is such a logical asset to invest in, in this period, where interest rates are rising, and inflation is rising.

“Essentially, if we wanted to increase our rents by 15 per cent next semester, that's entirely possible,” he said.

“So we can hedge against inflation.

“I think there will be a lot of interest from capital to continue to invest. And I think that's going to counteract a little bit of the effects of rising interest rates and risk-free rates.” 

Singapore-based Wee Hur Capital made its first investment in Australia’s PBSA sector in 2015, developing a 1578-bed building at Buranda in Brisbane.

Since then they’ve acquired land for seven additional PBSA properties in Brisbane, Adelaide, Melbourne, Canberra and Sydney.

All are expected to be operational within 18 months.

Nuveen Real Estate director of housing Ben Taylor said that investors might need to consider a develop-to-core strategy.

“I think we can also look at PBSA as a sort of a proxy exposure to the underlying residential market,” Taylor said.

“We have very tight vacancy rates, rents are growing, and there's an under supply there, which will further underpin the rental growth and demand for PBSA as well.

“What we've seen, historically, with Australian PBSA is that, typically, completed operational assets tend to be tightly held and transactions are fairly rare,” he said.

“So I think any investor looking to deploy meaningful amounts of capital, will probably have to consider a develop-to-core strategy.”