Higher rents and rising living costs could see students turn back to specialist student accommodation according to an expert.
Ray White Commercial Head of Research, Vanessa Rader said many students will potentially look for more affordable housing options as costs continue to rise.
“Considering the low vacancy environment in the broader residential market and the strong upticks in rents, particularly in major cities, we are likely to see more domestic students gravitate towards these specialised accommodation options with their inclusive structures, which often include outgoings such as internet and electricity,” Ms Rader said.
Ms Rader said that as interest rates fell in recent years, so did the yield on student accommodation.
“Student accommodation assets have shown a wide range in investment yields over the last 10 years, often showing a significant spread to traditional commercial investments average yields prior to the pandemic ranged anywhere between 6 per cent and 8.5 per cent,” she said.
“Given the reduction in interest rates, we saw yield sharply reduce over the last couple of years, with ranges reducing closer to 5 per cent to 6 per cent, however as interest rates rise and with international student arrivals slow to recover, the future for student accommodation is uncertain.”
According to Ms Rader, international student arrivals are more than 60 per cent below pre-COVID-19 levels for some cities.
“The attraction from overseas students has somewhat diminished, especially from markets such as China where there has been an 84 per cent decrease in student arrivals,” she said.
“India is now the major contributor to international student numbers in Australia, representing 16.52 per cent of all arrivals, which are down 61.62 per cent compared to June 2019 results.
“The ability to learn remotely has seen 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.
“This is supported by the strong number of students who hold visas who are currently not in Australia. Currently there are 19 per cent of visa holders who are not currently in the country, again China the major contributor to this, with 37 per cent of visa recipients back home, followed by Columbia at 27 per cent.”
Ms Rader said it would take time to see a full recovery in student numbers.
“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 5000 new student accommodation units in the development pipeline across the country.”