Don’t be surprised if you start hearing the abbreviation “beds, sheds and meds” in terms of commercial investment opportunities this year.
This is the term coined to describe assets currently viewed by industry experts as sitting atop the opportunity tree - more specifically: build to rent (BTR), healthcare and logistics/industrial space.
And the area drawing most attention falls under the BTR umbrella – that of purpose-built student accommodation (PBSA).
“So beds, sheds and meds,” sums up Alex Crossing, Asia Pacific Regional Head of Indirect Private Real Estate at CBRE Investment Management. “They’re some of the main areas we’re looking at and we are particularly looking at all aspects of the living sector space in Australia as the government’s policies are very supportive of that becoming a bigger part of the institutional investor’s universe.”
In logistics, the advice is to focus on “well-located, consumer-demand-driven locations” Ms Crossing says, while healthcare assets of all types are also in the picture despite increasing challenges around finding quality investments.
Some of the biggest potential though is being posed by student accommodation.
“This is particularly the case in Australia where we’ve looked to get access to the local living sector and found student accommodation is the area where the numbers stack up best, despite a number of factors such as regulations and taxes,” Ms Crossing says.
PBSA: the inside running
A recent crunch of numbers by CBRE shows around 60,000 purpose-built student accommodation beds nationally – referring to places that allow student to live on or near university campuses – as the volume of international student arrivals is set to surge past pre-COVID levels.
Last July for instance, more than double the number of international students arrived in Australia (131,640 students according to the ABS) compared to the same time last year (60,420). A further 50,000-plus arrived the following month. Those figures were still 8.5% lower than July 2019 pre-COVID – but international student arrivals are now forecast to surpass these levels in 2024 according to a report by major property firm Savills’, and then grow close to one million by the end of the 2025 academic year.
It's not hard to see why there’s consensus among property experts on the opportunities presented by the sector.
Conal Newland, head of Savills’ Operational Capital Markets, says investors should feel comfortable entering the sector despite economic headwinds and ongoing problems in the construction industry around higher costs. Why? Because the student accommodation sector offers consistent returns, he says. “Unlike many other real estate sectors, rents can be rebased every six months, or even every semester – keeping pace with inflation and adapting to a shifting economic environment.”
The view of CBRE’s Pacific Head of Research and respected industry thought leader, Sameer Chopra, is even more encouraging: PBSA as an investment opportunity, he says, is “deeply unpenetrated”.
“We’ve got one purpose-built student accommodation bed for every 16 students out there,” Mr Chopra explains. “To put that in context, in the UK there’s one bed for every two to three students. The Australian market can quadruple to broadly match what the UK looks like.”
CBRE’s Investment Management division started examining Australia’s PBSA market in 2018 before entering in 2019. Between 2018 and 2023, the research shows median rents for student accommodation rising at a compound annual growth rate (CAGR) of 5.5% from $406 per week to $530 per week across Sydney, Melbourne and Brisbane. Mr Chopra said the sector is also proving “quite resilient in the face of rising interest rates.”
Those in the industry are looking to a bright future too: Anouk Darling, CEO of major student accommodation owner and operator Scape, describes the sector as having gone from “zero to hero”.
“We’ve got domestic student mobility, we’ve got the student enrolment migration numbers lifting, we’ve got the lowest vacancy rates on record. And now we’re looking at a sector that’s got top line rental growth roughly outpacing inflation,” Ms Darling says. “It’s absolutely an exciting time to be here… we have been sling-shotted from a very treacherous position of nearly empty over two years of lockdown, to now being at 98% capacity.”