School’s In: students driving development wave

Aspial is selling 240 Margaret Street in Brisbane

Australia’s student accommodation sector is rapidly switching to “growth on” mode. After a near-death experience during the coronavirus crisis it has emerged as one of the most attractive destinations in real estate.

Big capital is following the wave of international students returning to major cities as their universities revert to traditional on-campus learning. The boost to city economies around Australia has already been felt with big developers gaining confidence about the prospects of not only student housing but also their city malls and new apartment blocks.

And with the big money flowing there is enough confidence to spark what could become a long run of new style developments.

The now $17bn industry is looking to chart a course in which it will set the higher standards for purpose built student accommodation. Big players are confident they can hit both their financial metrics and the sustainability demands being made by student tenants.

The burst of activity comes amid the tight rental squeeze which has gripped most capital cities. This has helped get new projects off the ground, even when construction costs are rising and higher interest rates loom over the market.

In one of the biggest recent plays, Canadian giant Brookfield is putting its stamp on the local student accommodation market with the purchase of a $32m site which holds approval for one of Brisbane’s tallest towers.

The company has struck a deal to acquire a 1715sq m parcel in the city’s Margaret St which would add to its holdings in the hot sector and could propel it past its initial plans of building up a $500m portfolio.

Brookfield has inked an option deal to acquire 240 Margaret St, which has approval for a 91-storey residential apartment tower. It is structured as an option agreement to acquire the site from Singapore-listed Aspial.

That company in 2014 lodged plans for the super-tall tower, which was to match its plans for another one in nearby Albert St.

But the Singapore-listed conglomerate indicated that it would offload the Margaret St site, potentially clearing the way for a conversion into a landmark office project, in 2018.

Aspial’s planned skyrise apartments would have contained 783 apartments and also sported direct access to the proposed Cross River Rail and the Queens Wharf precinct.

Brookfield has yet to reveal its plans for the site which has the capacity for one of the country’s largest student or rental accommodation blocks.

Brookfield head of real estate Australia Sophie Fallman said Brisbane was identified as a key market for student accommodation when the firm’s local platform was launched in 2022.

“The market has performed extremely well over the past 12 months and we expect this to continue. Brookfield has a large global student accommodation platform and we expect the Australian business to contribute meaningfully to this over the coming years as we build our presence,” Ms Fallman said.

The accommodation squeeze is only one factor in its plans, with the Canadian group looking to build up a longer term platform.

Its move also points to the future of some large sites in capital cities, which are being targeted by student accommodation and build to rent operators after years of being moribund potential apartment and office sites.

Built to sell apartment developments have struggled to get off the ground since the retreat of Chinese buyers and advent of a tougher financing climate. Big office developments have also been slow as precommitments are hard to win.

Brookfield has already established a substantive presence in student accommodation, and is developing a major site in Melbourne.

It last year bought opposite the University of Melbourne, on Grattan and Bouverie Streets, where it is developing a complex to be ready in 2025.

It got into the area locally with that purchase last year, striking up a joint venture with property business Citiplan to acquire and develop student accommodation projects near major universities.

The pair are working to build a platform of high-quality purpose-built student accommodation assets, to be run by Journal Student Living, which Citiplan set up. They are aiming for the top end of the student market in key gateway cities around Australasia. The venture was looking to build up a portfolio around Australia, and will build on Brookfield’s $US4.6bn global student business.

Other big players are moving in the sector, with UniLodge Melbourne Central and UniLodge Melbourne CBD just completed by investment manager Cedar Pacific, which has grown to have 10,200 beds in its Australasian portfolio. It has 1400 beds in development and is also expanding into build-to-rent.

The scale of the Melbourne towers show the sector’s potential at a time when build-to-sell apartments are subdued. UniLodge Melbourne Central is a 46-floor, 714 bed student block on Latrobe St near RMIT. The nearby UniLodge Melbourne CBD has 652 self-contained studio and multi-share units over 37 floors.

Both have been designed and constructed to achieve 5 Star Green Star (Design and As-Built) ratings and will pursue Climate Active certification to reflect carbon neutrality targets.

“Cedar Pacific’s commitment to developing sustainable buildings reflects our core values and the expectations of various stakeholders including investors and the consciously minded student cohorts,” Cedar Pacific director of legal, compliance & ESG Zhinus Etehad said.

Offshore capital is also behind most projects. CBRE Investment Management’s indirect private real estate strategies team invested in the Melbourne developments via a joint venture with Cedar Pacific, which has three student assets running and two in development.

Debt for the Melbourne buildings came from private equity giant Blackstone.

“Cedar Pacific will work closely with the major universities located in Melbourne to ensure their students, who will occupy these buildings, have the best living experience possible while they pursue their education goals. They will experience best practice physical amenity supported by pastoral care of the highest standard,” Cedar Pacific COO Paul Fell said.

These moves are only the latest in the recovery of the student accommodation sector which was slammed during the Covid-19 crisis.

JLL says there has been a lift in institutions chasing the sector with new players entering the market while existing investors also expanded.

Along with Brookfield, fellow Canadian group Ivanhoe Cambridge made a $1bn capital commitment to Scape’s Core Fund. Singaporean fund GIC also bought a 49.9 per cent stake in the Wee Hur Master trust for $568m.

JLL said that although the US and Europe had greater depth of stock and liquidity, the offshore groups already here saw the local market offering more attractive yields and the opportunity to leverage off the under-supply of appropriate student housing.

Many assets also kept their value in the recent market storm due to strong occupancy and rental growth, helping to offset rising financing costs.

The action is far from over. With a plethora of operators and capital chasing deals, mergers could be on the agenda.

“Consolidation across the sector will remain a key theme going forward as both major operators and capital sources cement their positions in the market,” JLL said.