BY BEN APTED, SENIOR PARTNER & EDUCATION LEAD
When asked by Asia-Pacific Student Accommodation Association (APSAA) to write about some clear messages on the current state of student accommodation in Australia after the recent conference on the Gold Coast, I concluded that there is no universal current state. The market for student accommodation is determined largely by University profile, location, and availability of accommodation alternatives for students. Market locations range from significant unmet demand to inability to fill beds; dealing with old stock redundancy to managing increased operating costs of new facilities; and delivery models that vary from highly student-centric university-operated services, to hands-off, or reliance on external providers.
As predicted, the last few years have seen emergence of accommodation models prevalent for longer in the UK and US. Interest from Purpose Built Student Accommodation (PBSA) providers is strong. However, this interest is largely confined to highly ranked universities and city-based locations, with only a few exceptions. For universities that seek to have greater control over or benefit from income through student accommodation, the availability of project financing has enabled addition of new beds with some constraints and caveats such as demand underwriting which appear on the surface to be viable at least in a growing international student market.
I am going to present a more pragmatic view. It’s possible that what I write will also be incorrect, however I do believe it to be a true reflection of the state of play today.
Universities have an important duty of care to students: once enrolled, we need to support them through their study. Student accommodation plays a key role in a supported student proposition. Student accommodation can also provide a differentiator for a University to aid in attracting students. It’s not only the building that provides the major differentiator: it’s the services provided and the connected communities created that drive student attainment and achievement.
"Australian Universities are just beginning to understand the costs of growth: particularly the next phase of growth, where the combination of a desire for new research buildings, upgraded teaching facilities, dealing with older building stock, and a desire to provide accommodation for a larger proportion of the student cohort, mean that University balance sheets are tested, as are the increased operating costs of new assets."
Australian universities and local economies have benefited significantly from strong international student growth which has sustained over the last 5-7 years. Our education and prospective employment opportunities after graduation are attractive, so sustained growth does not come as a surprise. International students provide much needed income for investment in research and core business. Some have suggested that international students underpin our economy: certainly, they underpin part of our University growth and prosperity. What has been less understood in the past however, is the cost of growth.
At the recent APSAA student accommodation conference I asked the room of 450 people, with all Universities represented, two questions: 1) whose University does not seek to grow, and 2) whose University understands the costs to sustain that growth. One University raised their hand to question one. None raised to question 2. Australian Universities are just beginning to understand the costs of growth: particularly the next phase of growth, where a combination of a desire for new research buildings, upgraded teaching facilities, dealing with older building stock, and a desire to provide accommodation for a larger proportion of the student cohort mean that University balance sheets are tested, as are the increased operating costs of new assets. Of note, ANU Vice Chancellor Brian Schmidt announced recently that ANU will cap its domestic and international student load, citing a desire to maintain a high quality student base. It is possible that there’s more to that decision, and I suspect cost and some well-placed conservatism could also play a role.
To close, here are some statements that may generally apply to most universities:
- Seek to clarify and reconfirm the desired role that student accommodation will play at your University.
- Understand the significant influence any University has over accommodating students within its immediate market, whether that be University-provided, or establishment of PBSA.
- Understand that fully meeting demand is not a good business strategy in any case, and recognise when students are making comfortable choices to be accommodated elsewhere: perhaps you don’t need to solve for this.
- Understand why not all Universities have strong demand for student accommodation right now, even though international student load has continued to grow. There is a notable difference between city-based and regional campuses, as there is between vortex and waypoint universities regardless of location.
- Recognise that sometimes, a strong student accommodation service model can increase student success, although it’s less likely to be a driver of University choice in the first instance.
- Evaluate potential partnership and PBSA options with care: there are some good providers in the market at present, but you need to be very clear on your service strategy and operating agreement framework in order to benefit fully from them.
- Recognise when space around you is likely to increase in premium. As evidenced by the USA and UK, Universities are having to play a greater role to subsidise the cost to stay near campus, and to fund greater diversity in the student population.
- Understand the true cost of growth, particularly if you experience pressure to build more on an assumption that the last five years of growth will continue. Factor a potential drop in demand in your decision making: on your capital investment, but more importantly on your ongoing operational costs.