Student accommodation property was thought to be a resilient, defensive asset in previous crises, but does this hold true at a time of the Covid-19 pandemic when the new normal are social distancing and online classes?
The segment has won many deep-pocketed admirers over the past five years among sovereign wealth funds and pension fund managers, with the likes of Singapore’s GIC, Blackstone and Scape Australia among the hungriest investors. Now, there is a mixed view about the segment’s prospects, but analysts and investors reckon that the asset’s long-term fundamentals remain sound.
“The student accommodation industry has seen a huge drop in occupancy rates following the implementation of travel bans and restrictions,” said Ricky Phoon, director at Australian property developer BEKL, which owns such assets in Melbourne. “Its impacts are being felt nationwide.”
Masonic Residence, BEKL’s student accommodation property near Monash University, offers 86 rooms and currently has 60 students living there, Phoon added, having experienced a drop in occupancy rates following the travel ban. Its other property, Wattle Park Residence, is located near Deakin University in Melbourne, a Covid-19 hotspot in Australia.
The weaker market trend is not dissimilar to Hong Kong, where landlords have seen rental yields slipping near local universities as prolonged travel bans have shrunk the student population in the city.
“The travel ban physically blocks overseas students from coming into Australia. Unlike hotels where we can rely on the local market, student accommodation predominantly relies on international and interstate students,” Phoon said.
A report released in April by property consultancy JLL said student housing has absorbed a range of impacts from the Covid-19 crisis. At the same time, there may be a material adjustment to the proportion of international students taking up places at Western universities, it said.
Investors appear to be undeterred. Investment in Australia‘s student housing segment amounted to US$1.36 billion in the first half this year, more than triple the US$431 million it received in the whole of 2019, according to data from Real Capital Analytics, which tracks deals worth at least US$10 million.
One such investor is Singapore-based SC Capital Partners. It owns student accommodation in Australia, Japan and New Zealand, operating a combined 1,500 beds. In Sydney, its Kensington property has 200 beds and is close to the University of New South Wales.
“We find that education-related assets are very resilient. International schools, student accommodation, office buildings that rent to the tuition sector or the education department, we found that class of assets weather crisis relatively much better than other class of assets,” said Suchad Chiaranussati, chairman and founder of SC Capital.
The pan-Asian private equity fund, which manages US$7.5 billion in assets, has an evergreen and opportunistic allocation to stay invested in the segment, he added.
“This is a fund that holds assets between five and 10 years and we are looking at long-term drivers, which are critical for this kind of fund,” said Jyoti Ramchandani, SC Capital managing director. “What we have seen over the years in these markets is that incomes have gone up, and expenditure in education is rising.”
Analysts agree that the segment’s current pain may be short-term. The current downturn provides investors an opportunity to enter the segment, said Chris Pilgrim, executive director, CBRE global capital markets.
“Capital sources in the market are confident the student housing market will bounce back and recover,” he said. “Rents and yields remain stable, although a capital deduction is being taken to allow for cash flow uncertainty over the next 12-18 months.”
Australia is also set to pilot a programme that will fly in 300 international students from mainland China, Hong Kong, and Japan through Singapore to Adelaide in South Australia. The initiative will be a test case for the launch of a national strategy to provide dedicated flights for international students to re-enter the country.
“Investors are looking through the effects of Covid-19 as a short-term occupancy impact and remain confident that the sector will return to strength once our borders are reopened,” said David Hill, JLL director, alternative investments for Australia.
Another plus for Australia is that its universities are among the world’s best, boosting the country’s reputation as a quality education destination. Twelve universities made the top 200 in the latest Times Higher Education World University Rankings.
It “reaffirms that Australian universities are held in high regard nationally and internationally,” said Conal Newland, national director, student accommodation at Savills Australia and New Zealand. “When international borders reopen and students return to travelling to the best universities for education, Australia will be in a position to regain its position as one of the top destinations.”
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