Student property market still trying to find its feet

Investors in student accommodation have had a tough couple of years, but even in a post-pandemic world the outlook remains uncertain, according to one of Australia’s leading commercial property analysts.

Ray White Commercial head of research Vanessa Rader said the pandemic was a trying time for student accommodation providers given that international students stopped arriving. Arrivals are still well below pre-pandemic levels, even though the international border has reopened.

"The attraction from overseas students has somewhat diminished, especially from markets such as China where there has been an 84% decrease in student arrivals," she said.

"The ability to learn remotely has been a major obstacle in attracting students, as well as political pressures, resulting in a significant decline in international demand, which makes up the bulk of tenants in student accommodation assets."

Ms Rader said international students were likely to gravitate towards specialised accommodation options, given that vacancy rates in the general rental market were so low right now. But that wouldn't completely solve the demand problem.

"Looking ahead, until there is greater recovery in the international student market, occupancy levels may be under pressure together with rising interest rates, resulting in yields moving back towards pre covid-19 levels,” she said.

“This is expected to further hinder the completion of close to 5,000 new student accommodation units in the development pipeline across the country.”

Yields hard to predict

In the years before the pandemic, the student accommodation market became increasingly sophisticated, with a move away from purely on-campus facilities to stand-alone, purpose-built accommodation centres with quality management, according to Ms Rader.

"As a result, we saw the emergence of student accommodation as a commercial investment asset, with a range of buyers looking to take advantage of high occupancy and stable returns which the asset class had to offer," she said.

During that time, average yields ranged from 6% to 8.5%.

"Given the reduction in interest rates, we saw yield sharply reduce over the last couple of years, with ranges reducing closer to 5% to 6%. However, as interest rates rise and international student arrivals [start] to recover, the future for student accommodation is uncertain."

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