Fears over student accommodation glut
Australia’s booming market for purpose-built student accommodation, having caught the attention of some of the world’s largest investors, could be on the precipice of oversupply, with concerns among some of the industry’s largest outfits over the number of new beds in Brisbane.
Iglu, backed by Macquarie and Singaporean sovereign wealth fund GIC, has ceased any new developments in the city, a position the company’s director Richard Smith says is unlikely to change “in the foreseeable future”.
Campus Living Villages, currently considering a $2 billion trade sale of its global portfolio through UBS, told The Australian it too had “no immediate plans to enter what is a very active Brisbane market”.
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But backed by institutional money and private equity, outfits like Scape Student Living and Blue Sky Alternative Investments are continuing to chase new developments, with the latest analysis showing the number of beds in Brisbane will double by the end of the decade.
A report produced by commercial realtors JLL shows about 10,000 beds proposed in Brisbane, “the largest pipeline of beds in the country”, adding to the existing supply of 9325 beds by 2020.
The largest number of beds, about 3500, are expected to hit the market in 2018, with 9.7% of university students in Brisbane now renting purpose-built accommodation.
Education remains the country’s third-largest export earner, behind only iron ore and coal, with substantial increases in international student numbers, up 11% to 493,700 in the first seven months of the year.
But Iglu, which runs two student accommodation facilities in Brisbane, including one that opened months late, says it is “always a challenge” to fill the properties.
“There are a limited number of students, particularly at the higher price points,” Smith says.
We are observing significant off-campus development activity in the Brisbane CBD and surrounding suburbs
“Most of the new product is targeting a similar student demographic and we are concerned about the depth of the market to support all this new product.
“In our view Brisbane is the most oversupplied market in Australia … the student market is about half the size of Sydney and Melbourne yet has the largest development pipeline in Australia.”
Campus Living’s Australian chief executive, Michael Heffernan, says the company “carefully monitors the supply and demand across all of Australia’s metropolitan cities”.
“We are observing significant off-campus development activity in the Brisbane CBD and surrounding suburbs,” Heffernan says. Campus Living, which largely focuses on developing properties on university campuses, sold a 454-bed site to Iglu late last year for more than $50 million.
That deal capped a year of significant transactions, including the entry of Singapore’s Wee Hur into Brisbane, planning to develop 1600 rooms across two towers, while private equity firm Valparaiso Capital Partners recently redeveloped the old Boeing Defence headquarters in the city.
However, other major operators, including Scape Student Living executive director Craig Carracher, say they don’t see “any change in the fundamental dynamics” or demand from international students.
“We do see a burgeoning supply story, but this supply is more suited to domestic students and will have to compete at domestic price points,” Carracher says.
Scape is developing about 2000 beds in Brisbane.
Earlier this month Dutch investment manager Bouwinvest increased the funds committed to Scape to $115 million.
There are a limited number of students, particularly at the higher price points
It already counts pension fund APG and the Hong Kong-based investment arm ICBC as major shareholders.
Blue Sky, which is backed in its student accommodation venture by Goldman Sachs, was criticised for its exposure to Brisbane’s student accommodation and residential apartment market in a confidential research note circulated by Diogenes Research.
The note appears to question the valuations of Blue Sky’s real estate assets.
In October, Blue Sky’s listed Alternatives Access Fund revalued one fund — Student Accommodation Fund IV, focused on the Adelaide CBD — 26% higher.
Those valuations, the company says, are independently provided by JLL.
But Blue Sky’s managing director Robert Shand says the company’s student accommodation projects are “all tracking well ahead of our forecasts”.
“We couldn’t be more pleased with our investment in the student accommodation market,” Shand says.
“The first of our student accommodation developments in Brisbane opened earlier this year. It was built ahead of schedule, on budget and is already performing ahead of targets.”