Paul Savitz- Knight Frank Australia

BRISBANE

Future supply and demand for student housing

30th October 2015

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Introduction & Past Experience

PAUL SAVITZAssociate Director

Research & Consulting

6+ years experience in researching purpose

built student accommodation

(PBSA) markets across the UK, Europe and

Australia

Supply and Demand Assessments Valuation Support

Student Experience and Need Surveys

Research Reports & White Papers

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Knight Frank - Global

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Knight Frank - Local

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Agenda

Current Demand & Supply Imbalance

Future Demand & Supply – Growth?

Importance of PBSA

PBSA Sector Investment & Development

Outlook

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Student numbers trending up

Source: Knight Frank Research, Department of Education and Training (full time students)

Solid annual growth from 2001 onwards

972,336 students enrolled on a full time basis, up 5.1% from 924,845 in 2013

The number of full time international students enrolled at Australian Higher Education Institutions has shown positive growth (7.3%) for the second consecutive year

A depreciation of the Australian Dollar, increasing confidence in student safety, and the simplification of student visa applications have facilitated this returning growth

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International students at record levels


14 year average = 29.1% of all full time students

2014 recorded 30.1%

International students have grown by 152% since 2001, from 116,304 to a new peak of 292,654 in 2014

Why are international students important?

1) They pay higher tuition fees than domestic students

2) More likely to require accommodation as on the whole they do not have access to a domestic residence

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Demand is growing…


76% of students located across NSW, VIC and QLD

All three states, NSW, Vic & Qld have shown annual growth in overseas full time students this past year of 11.4%, 9.1% and 5.9% respectively

Eastern Seaboard are the largest markets for

international students and is also where growth has been

strongest

October 20159

However…supply doesn’t add up

Source: Knight Frank Research, UCA 2014 Census Report

UCA 2014 Census report showed average growth of 2,325 student beds per year since 1999 (4% per annum)…FT HE students alone have increased by an average of 33,000 per annum from 2001‐2014

Knight Frank’s analysis of PBSA across Australia indicates a figure close to 81,867

Takes into consideration the completion of 5,611 PBSA bedspaces which became operational in 2015

The Eastern Seaboard states of Queensland, New South Wales and Victoria account for over 76% of all PBSA bedspaces

13,410

28,782

20,539National: 81,867

4,964

662

4,688

7,469

1,353

Growth in student numbers has historically outweighed

the growth in PBSA

October 201510

Concentrating on the main capitals…

Source: Knight Frank Research, Department of Education and Training

1 PBSA bedspace for every 2.8 FT international HE students nationally

This figure rises to…

13.4 & 4.2 in Melbourne

12.4 & 3.6 in Sydney

14.4 & 3.6 in Brisbane

17.0 & 3.4 in Perth

13.5 & 3.2 in Adelaide

Although falls to…

3.8 & 1.1 in Canberra

Highlights the acuteness of the shortage in student accommodation

National: for every 1 PBSA bedspace there are

11.1 FT HE students

July 201511

Placing those figures into context…

Source: Deloitte Real Estate, HESA

Perth

Highlights the maturity of, and accessibility of, the student

accommodation market in other

nations

Nations such as the UK compete with Australia for the recruitment of international

students The UK PBSA market has now matured into a sector where the

transaction of assets and land has averaged close to £2bn annually over the past five years, with investment activity reaching record levels, of over £4bn, in the first half of 2015.

October 201512

Future supply pipeline is increasing…

Source: Knight Frank Research

Greater interest & knowledge of the sector – an understanding of undersupply levels

Knight Frank estimate that 22,631 PBSA bedspaces have the potential to become operational by the end of 2020

If all is built majority of new stock will be delivered across Sydney (15%), Melbourne (27%) and Brisbane (33%)

Currently 7,385 PBSA bedspaces in the Brisbane supply pipeline

The City Council has adapted planning regulations to allow for reduced developer contributions on sites which fall within specified parameters

8,726

5,130

6,795National: 22,631

425

0

505

500

550

…but not quick enough (pipeline to 2020)

October 201513

Delivery of new PBSA bedspaces to peak in 2018


…but more developments required to keep up with

demand With significant student

accommodation development either planned or underway throughout Australia, compared with historic development levels, an inferior scheme will quickly prove to be an unviable asset

As a result of limited supply of quality PBSA, Australian Institutions are reliant on the private rented residential market to which they have no control

Going forward this will impact on their ability to recruit the best students, negatively impacting their positions, and reputations, in world education rankings

October 201514

PBSA supply massively below residential completion levels


PBSA developers have not been able to compete for sites as land

and apartment prices have increased significantly over the

past few years

Since January 2011, 131,425 new apartments have been added to the Australian residential stock

Led by Greater Sydney (46,490) and Greater Melbourne (41,045)

In total, there are currently 85,240 apartments under construction in Australia, with another 129,425 with DA approval which have the potential to be on‐line by the end of 2018

October 201515

Residential supply has increased but still high rents and low vacancy


…Highest annual residential rental growth is still being

experienced in Greater Sydney, at 6.7% over the year to June 2015, achieving $560 per week

Vacancy indicators show that there is room for rents to grow further as total vacancy remains below the 3% equilibrium

Good news for PBSA developers, operators and investors

Latent demand

PBSA appears to be a low risk investment

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Demographics will drive further demand

Source: Knight Frank Research, ABS

Indications are that demand for Higher Education places will continue to rise, even in the face of possible increases in tuition fees, as the key student demographic (18‐22 year olds) continues its upward growth trend

The increase in 18‐22 year olds, projected at an average growth of 0.6% per annum over the next 10 years, or 83,415 in absolute number terms will underwrite significant expansion in Australian Higher Education provision

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Global student mobility to increase

Source: Knight Frank Research, OECD, Böhm et al 2003

Education is an increasingly global marketplace

The number of students attending university outside their own country is forecast to more than double by 2025

An opportunity for Australian Higher Education Institutions to increase their student intake

And an opportunity for developers and investors into student accommodation

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All leading to a continued increase in mobile students

Source: Knight Frank Research, UCA

Mobile, higher education students are counted as the sum of domestic full‐time interstate students plus domestic full‐time intrastate students who must leave home to attend their chosen university plus onshore full‐time international students

There was an increase of 47% in the number of mobile higher education students over the period 2004 through to 2013

Equates to a 4.4% compound annual growth rate over the same period

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And a need for more accommodation

Source: Knight Frank Research, UCA 2014 Census Report

Using past growth trends of mobile students to estimate future growth, by 2024, there could be over 500,000 mobile students in Australia

Without a significant increase in purpose built student accommodation where will these students live?

This is an increasingly important issue as…

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Students are already worried about the cost of accommodation

Source: Knight Frank Research, Department of Education & Training: International Student Survey 2014

Satisfaction with Australian accommodation costs according to the International Student Survey 2014 has decreased:

2010 = 60% satisfaction



These declining satisfaction levels could be reflective of the cost of living in Australia compared with home countries for international students

Or changing exchange rates

But likely to be because of increasing rents – a result of limited supply & growing demand

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And students are now demanding more

Source: Knight Frank Research, Unite Students

Unite Group – 44,969 student bedspaces (18% located in London) & a further 6,914 (34% in London) in the development pipeline

Applicants increasingly see accommodation ‐ and the quality of accommodation ‐ as a big draw for applying to a particular university

“THE RISE OF THE STUDENT AS A CONSUMER”

In 2014 a quarter of Applicants considered ‘good quality accommodation’ an important factor for choosing a university. That has risen to over a third (35%) in 2015. There is also greater interest this year in a safe environment to live in, with 24% finding it important to their experience compared with 20% in last year

More than a fifth of Applicants (22%) say the accommodation on offer is one of their top three reasons for their choice of university. Both ‘academic support’ and ‘a great nightlife’ were beaten to the spot

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Domestic & global investors/developers are recognising the opportunity

22Source: Knight Frank Research

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Investment stock deals are also beginning to happen

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Location: Melbourne

Sale Date July 2015

Price n/a

Details: 1,600 bedspaces


YMCA UniLodge Confidential ?Campus Living Villages Iglu

Location: Sydney

Sale Date: Q4 2015 tbc

Price: tbc

Details: 233 bedspaces

Location: Brisbane

Sale Date: September 2015

Price: c$50m

Details: 454 bedspaces

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Investors are circling

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Growing knowledge of undersupply and the PBSA sector

fundamentals

Higher Education institutions to concentrate majority of funds on

research and teaching – not on proving accommodation

Low risk investment – latent demand

Demand for alternative investment assets – both domestically

and globally

Low interest rates and falling cost of debt make Australian real

estate yield attractive and a stable investment

Planning & development encouragement & support (Brisbane)

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Outlook for the PBSA Sector

Continued growth in the number of mobile

students globally and into Australia

Continued increase in student accommodation

costs in the big cities as PBSA supply remains

limited

& decreasing satisfaction trends to continue

Council/State awareness and support for the development of PBSA across capital cities

Investment and development volumes are expected to increase over the next 12‐24

months as interest and knowledge of the sector grows

Global and domestic PBSA brands to emerge and gain scale in Australia

An exciting and interesting time, but an important time, for the sector

BRISBANE

Discussion & [email protected]

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Disclaimer

© Knight Frank 2015 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not permitted without prior consent of, and proper reference to Knight Frank Research.

This document may contain information supplied to Knight Frank by third parties that may not have been validated and Knight Frank cannot accept liability for conclusions based upon such information. This document may not be passed onto, or be used in any way by, any third party. The research report should not be relied on by the nominated party/parties for any other purpose and has been prepared by Knight Frank independently of Informa or the Student Experience and Housing Symposium 2015 and its related parties.

Paul Savitz- Knight Frank Australia

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