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University of New South Wales, The University Terraces

Australian Student Accommodation Market Update

June 2014

Student demographics

Of all international students in Australia, approximately 45% are aged 20 to 24 years old.

1 Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) Higher Education Statistics Data Cube (uCube) which is based on the student and staff data collections.

Table 1: Summary of Total Student Enrolments in 2012

Student Type / State Full-time Part-time TotalDomestic 614,227 317,534 931,761International 267,870 58,091 325,961Total 882,097 375,625 1,257,722

Source: Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) Higher Education Statistics Data Cube (uCube) which is based on the student and staff data collections. (2012)

2 Research

After a period of several years where the number of students in Australia has fluctuated, latest data indicates a return to growth in total student numbers. Factors contributing to the growth include depreciation of the Australian dollar (making education in Australia more affordable for international students), changes to the student visa system and improving perception of international students’ safety whilst studying in Australia following several incidences of violence in 2009.

Welcome to the inaugural JLL Australian student accommodation market update which focuses on the investment, development and operation of Purpose Built Student Accommodation (PBSA) following our previous research in “Student housing; a new global asset class”.

Areas of discussion include:• Student demographics – Overview of the existing student

population and growth forecasts focusing on trends that may influence the demand for student accommodation.

• Existing and pipeline PBSA – Update on university and private sector provisions in the six main education cities across Australia.

• Top 10 student accommodation providers in Australia – Update on both the existing supply of accommodation and properties in the pipeline.

• Transactions – Summarising key sales that have occurred within the last 12 months.

• 2014 budget – Comments on how this may impact the demand for PBSA.

Of the students 939,759 (75%) study in New South Wales, Victoria or Queensland. Table 2 shows the breakdown of domestic and international students by State.

Table 1 indicates that based on the latest Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) Higher Education Statistics Data, as of 2012 (most recent data available) there were a total of 1,257,7221 full-time and part-time as well as domestic and international students in Australia who were enrolled at a Higher Education Provider (HEP). This number represents an increase of 3% from 2011. Of this number 882,097 students are studying full-time, and 375,625 are studying part-time.

Communal courtyard and BBQ, Iglu Central, Sydney.

Student Type/ State

New South Wales Victoria Queensland Western

AustraliaSouth

Australia Tasmania Northern Territory

Australian Capital Territory Multi-State Total

Domestic 304,902 216,005 171,609 96,513 62,726 20,181 9,250 26,887 23,688 931,761International 85,813 110,067 51,363 37,854 21,566 5,391 1,018 9,429 3,460 325,961Total 390,715 326,072 222,972 134,367 84,292 25,572 10,268 36,316 27,148 1,257,722

Table 2: Student Enrolments by State in 2012

Source: Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) Higher Education Statistics Data Cube (uCube) which is based on the student and staff data collections. (2012)

2 Australian Government Department of Education Research Snapshot (April 2014) – “International student numbers 2013”. 3 Australian Government Department of Education Research Snapshot (November 2014) – “Export income to Australia from international education activity in 2012-13” 4 Australian Government Department of Education Research Snapshot (November 2014) – “Export income to Australia from international education activity in 2012-13”

International students studying and living in Australia contributed AUD14.461 billion to the Australian economy in the financial year to June 2013. This was a decrease of 1.7% on FY2012. In addition, sundry international education activities contributed AUD574 million for FY20133.

The total export income generated by all international activity during this period was AUD15.0 billion. This included spending on fees, and goods and services by onshore students; earnings from other educational services; education related personal travel and professional management consulting services4.

More recent data from the Australian Government Department of Education indicates that in 2013 there were a total of 410,925 international full-time and part-time students studying on a student visa in Australia. These students were from 193 different countries and represented an increase of 2.3% above 2012 international student numbers (401,722). Of the total international students, 44.6% were aged 20 to 24 years old2.

Australian Student Accommodation Market Update 3

The largest cohort of international students continues to be from Asian countries. These students bring differing requirements for the design and operation of student housing based on their experience of residential accommodation from their countries of origin and also the way in which they socialise. As indicated on Table 3, the top five countries where international students studying in Australia come from are China (29%), India (8.8%), The Republic of Korea (4.9%), Vietnam (4.9%) and Malaysia (4.6%). Nationalities in the top ten countries together contributed 66.9% of total international student numbers. Nine of the top 10 nationalities recorded more than 11,000 students studying onshore in Australia5.

Tertiary enrolments have expanded significantly worldwide in the past decade. In the 2000-2011 period, global tertiary enrolments rose rapidly, from 98 million to around 165 million in 2011, an increase of 68%. Furthermore, total tertiary enrolments are expected to reach over 263 million in 2025 (OECD).

5 Australian Government Department of Education Research Snapshot (November 2014) – “Export income to Australia from international education activity in 2012-13”

Table 3: International Student Numbers in Australia in 2013

Top 10 Nationalities Number of Students Percentage of Total

China 119,237 29.0%India 36,208 8.8%Republic of Korea 20,156 4.9%Vietnam 20,078 4.9%Malaysia 18,855 4.6%Thailand 13,991 3.4%Indonesia 13,319 3.2%Brazil 12,634 3.1%Nepal 11,268 2.7%USA 9,173 2.2%Other Nationalities 136,006 33.1%Total 410,925 100.0%

*International student numbers relate only to international students in Australia on a student visa and are derived from Australian Education International enrolments data.Source: Australian Government Department of Education Research Snapshot (April 2014) – “International student numbers 2013”

By 2020 more than seven million students will study outside of their home country.

4 Research

There has also been a marked increase in choosing to study at universities outside their home countries. Between 2000 and 2009, global international students in higher education institutions increased steeply from 2.1 million to 3.7 million in 2009.

This growth occurred on the back of the establishment of inter-regional relationships, internationalisation of higher education and labour markets and a decline in transportation costs (OECD) as well as universities’ strategies to counteract decreases in government funding by expanding their markets internationally. The Organisation for Economic Cooperation and Development (OECD) estimates that international student numbers will increase globally by 7% per annum. Growth at this level would result in around 760,000 international student enrolments in Australia by 2020 – a 50% increase on 2012 figures6.

It is also predicted that by 2020 more than seven million students will study outside of their home country, the bulk of which will come from developing Asian economies such as China and India. (OECD and UNESCO statistics). We anticipate that the demand for PBSA will increase as international student numbers continue to grow lead by several factors:

• The proximity of PBSA to educational facilities and social/sporting amenities.

• The web presence and internet marketing of established student accommodation provider brands.

• A ‘one stop shop’ where students contract and make one payment to a landlord who will provide them furnished accommodation with utilities and basic internet services included (rather than renting in the private sector with a tenancy agreement plus separate contracts for utilities and services).

• Residential life programmes / pastoral care provided by private sector operators and / or universities.

• Enhanced security provided by 24/7 on-site management staffing.

Anecdotally, existing PBSA provided by private sector operators is primarily (approx. 75%) occupied by international students. However, we foresee that the domestic student market for PBSA will increase with students attracted by the points outlined above.

6 AEI – “Australia – Educating Globally: Advice from the International Education Advisory Council” (February 2013)

Urbanest, Cleveland Street, Sydney.


students, operators such as Urbanest are now delivering twin – share accommodation both in studios and apartment bedrooms. This concept of shared living has also been provided by a number of universities and public sector operators in the US and UK.

New PBSA typically includes a range of shared amenities including lounges, TV and games rooms, gymnasiums, music suites and kitchens that can be used for communal cooking classes or socialising. The amount of communal facilities will primarily be driven by the size of the property and the provision of amenities in proximity to the accommodation.

Existing supply of accommodation

Our analysis of the existing supply of accommodation focusses on the six main tertiary education cities across Australia. We recognise that in additional to these bedrooms, there is an existing and growing supply of PBSA in other localities. Our latest research summarised in Table 4 indicates that there are now 53,459 beds of Purpose Built Student Accommodation in these top six localities.

Table 4: Existing Accommodation in Major Australian Cities

Accommodation Analysis

University Provision

Commercial Provision Total

Sydney 7,182 6,518 13,700Melbourne 5,865 9,093 14,958Brisbane 4,186 4,000 8,186Adelaide 1,889 2,747 4,636Perth 3,929 839 4,768Canberra 2,831 4,380 7,211Total: 25,882 27,577 53,459

Figure 1: Existing UK Student Accommodation Provision

100,0000

200,000300,000400,000500,000600,000700,000800,000900,000

1,000,000

SharedHouses

UniversityMaintainedProperty

Parental/Guardian Home

Direct LetCommercial

HallsSource: HESA 2011/2012 and JLL Research

We note that the existing supply of accommodation in Australia is significantly less proportionally than in the more established market of the UK, where private sector operators currently provide some 235,000 bedrooms of accommodation either Direct Let to students or in partnership with universities, for the 1.7 million full-time students.

We estimate that approximately 3,000 bedrooms have been completed across Australia in 2014. This is primarily private sector accommodation, but includes just over 1,100 bedrooms of new and refurbished accommodation that has been delivered by the University of New South Wales (UNSW).

New PBSA typically includes a range of different layouts including self-contained studio apartments (incorporating a kitchenette and an en-suite bathroom) and apartments (typically ranging from two – six bedrooms) incorporating both shared bathrooms an en-suite facility. With increasing rents and affordability identified as a key issue for

Our analysis of the existing supply of PBSA (both university and private sector) indicates that in all the major Australian markets apart from Canberra, there is currently less than one bedroom of PBSA for every 10 students, Canberra has one bed per five students. All of the major Australian cities have less provision than more established markets such as London, where the ratio is one bedroom per four students.

6 Research

Uni Lodge, Kinloch common room ANU, Canberra and Vivida Melbourne.

Source: Universities websites, JLL Student Accommodation Database 2014, ABS Census 2011. Department of Industry 2012, UCube, HESA 2011/2012

4%6,518 Students

4%7,182 Students

92%156,500 Students

Sydney CBD and surrounds

Total170,200 Students

2%5,865 Students

95%297,096 Students


Greater Melbourne area

3%9,093 Students

4%4,186 Students

93%101,286 Students


Brisbane

4%4,000 Students

17.8%51,639 Students

London8.2%23,863 Students

74%214,398 Students


8%2,831 Students

Canberra

12%4,380 Students

80%29,105 Students


2%1,889 Students

95%79,656 Students


Adelaide

3%2,747 Students

3%3,929 Students

96%129,599 Students


Perth

1%839 Students

University provision

Commercial provision

Living with parents, renting or living elsewhere (including serviced apartments)


Pipeline

Our research indicates that Sydney and Melbourne have the most significant amounts of pipeline development with 5,241 and 1,528 beds respectively.

In Sydney, we are aware of the 18 proposed developments ranging in size from 10 bedrooms to 800 bedrooms that have either been put forward for development approval, have achieved development approval or are under construction. This pipeline development includes a number of proposals for the University of Sydney and its associated Colleges. Based on current timescales, we anticipate that the majority of this accommodation will be delivered for the 2015, 2016 and 2017 academic years.

Not included in this development pipeline is the proposed construction of approx. 3,500 bedrooms of new accommodation at Macquarie University. These proposals are currently being considered within the University’s master plan.

The new Sydney accommodation is primarily focussed toward the southern CBD area and surrounding localities. Completion of these new projects will consolidate this location as a focal point for students close to the universities, the colleges and the CBD. We anticipate that there will be further development of student focused retail and ammenities in this locality.

Our analysis of the Melbourne pipeline incorporates nine projects ranging from six bedrooms to approx. 650 bedrooms. The development of student accommodation in Melbourne is currently focussed towards the north western fringe of the CBD in proximity to RMIT and the University of Melbourne Parkville campus. This area is also under going significant re-development with a large number of residential apartments forecast to be delivered in the next five years.

Whilst we consider that the delivery of a large number of apartments into the Melbourne market may impact on PBSA, but we consider that the design layout of PBSA, together with the increased levels of management services and enhanced pastoral care will remain attractive to students.

In addition, we are aware of several proposals for new accommodation to be delivered in Brisbane, Adelaide and Perth to meet the short fall in supply within these markets.

Student Housing Australia, Porter Street, Melbourne.

8 Research

The top 10 student accommodation providers in AustraliaTable 5 provides a summary of the number of beds either owned or managed by each of the top 10 student accommodation providers in Australia.

This private sector accommodation includes both on campus and off campus accommodation. A number of the on campus accommodation developments have been delivered in Build Own Operate Transfer (BOOT) schemes whereby the University retains ownership of the land and at the end of the concessionary period (typically 30 to 40 years) the land and buildings will revert back into the ownership of the University.

The pipeline of 5,774 beds is anticipated to be delivered over the next three years which indicates average completions over this period of approx. 2,000 beds per annum.

Table 5: The Top 10 Private Sector Student Accommodation Providers in Australia 2014

Operator Total number of operational beds either owned or

under management in Australia as at

February 2014

Total number of buildings either owned or under management in Australia as at February 2014

Total number of beds with Development

Approval or under construction in Australia as at February 2014

Total number of buildings

with Development Approval or under

construction in Australia as at February 2014

Total number of operational beds

and number of beds in the Development

Pipeline as at February 2014

UniLodge 8,610 43 1,139 4 9,749

Campus Living Villages 9,094 13 127 1 9,221

Urbanest 2,308 5 2,442 5 4,750

Student Housing Australia 2,650 46 610 3 3,260

YMCA 1,800 3 0 0 1,800

The Pad 1,700 60 0 0 1,700

Frasers 0 0 1,042 2 1,042

Iglu 493 2 414 1 907

Centennial Property Group 633 2 0 0 633

Centurion 456 1 0 0 456

TOTAL 27,744 175 5,774 16 33,518Source: JLL Research

Urbanest, City Road, Sydney.


A significant number of domestic and international investors are currently looking to enter the Australian Student Accommodation sector. We estimate that there is currently over AUD1 billion of equity looking to enter the market. These investors are seeking opportunities to invest on and off campus, in existing assets and development opportunities. We consider that a lack of available assets is currently limiting the number of transactions in Australia.

Within the last 12 months there have been three transactions of note totalling approx. AUD250 million.

In December 2013 The Village at 210 Grote Street, Adelaide sold for approx. AUD40 million. This property comprises around 96 apartments currently providing accommodation to over 400 students. The property is 100% leased to the University of Adelaide.

RMIT Village Melbourne.

Transactions

In February 2014 JLL sold on behalf of Transfield Group the property at 5 – 17 Flemington Road, Melbourne, known as RMIT Village for AUD60 million. The property comprises 456 bedrooms within the former Old Melbourne Hotel and was re-developed into student accommodation in 2005. The property also incorporates a car park providing future development potential.

In February 2014 Macquarie Capital and the Sovereign Wealth Fund GIC completed the purchase of the student accommodation provider Iglu, its two operational properties in Sydney and a student accommodation development site in Brisbane for approx. AUD150 million. GIC has been active in the UK student accommodation sector since 2005 having formed the capital cities joint venture with Unite Group.

Continued transaction activity will help to establish investment yields in the sector. We currently consider that prime Net Initial Yields for new well located PBSA in major Australian Cities are in the range of 7.25 – 7.75%.

10 Research

2014 budget and the potential impact on student accommodationThe recently released 2014 Federal Budget includes quite significant proposed changes for the Australian University sector. There are a number of similarities between these proposals and changes that were made to the UK universities sector in 2012. We foresee that the de-regulation of University tuition fees may impact the student accommodation sector in a number of different ways as observed following changes in the UK.

A de-regulated fees environment leads to more competition between universities. As part of that competition, the quality of the University campus including student accommodation can become a key marketing point of differentiation for universities. This is evidenced in the UK where it has been recently reported that capital expenditure within the Russell Group universities (24 big research universities) over the next four years is estimated at GDP9 billion. It is reported that 37% of this expenditure will go into campus facilities, 31% in science and technology labs and medical research facilities, 10% in student accommodation, 8% in sports and cultural facilities, 7% in business

schools and 4% in libraries. The increase in spending has been linked to increasing competition between the universities and from international rivals.

As students are paying more for their education, as consumers they are demanding higher quality facilities for both teaching and living. With more pressure to complete courses as quickly as possible and mitigate the overall cost of education, the location, quality and support provided within student accommodation is becoming more important.

Changes to the government funding structure may encourage universities to seek alternative sources of funding for capital projects. In the UK, universities are now funding work from capital reserves, bank borrowing and bonds, teaching and research income, private donations and government grants. Private sector participation in the funding and delivery of student accommodation may also increase as universities seek to commit resources to their core activity of educating students.

Unilodge, D2, Melbourne and St Lucia, Brisbane.

Noral WildNational DirectorHead of Social Infrastructure – [email protected] +61 3 9672 6522


www.jll.com.au

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Jones Lang LaSalle© 2014 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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