Student Accommodation Sector Set to Recover Despite Cap Threats, Says Savills

New Report Reveals Largest PSBA Pipeline Since 2020 As Developers Supersize Their Projects

Leading agency Savills Australia’s latest Student Accommodation 2024 Report has revealed the resilience of Australia’s Purpose-Built Student Accommodation (PBSA) sector, despite the uncertainty of potential tertiary enrolment caps and ongoing feasibility issues. Demand for student beds will remain elevated in the face of looming legislative changes, according to Savills, with a more positive economic environment buoying investor confidence.

The report reveals there are 16 PBSA projects under construction across Australia’s capitals – the highest number since the pandemic – signalling increased confidence amongst developers. Sydney will lead the charge with the delivery of 4,300 new beds over the next three years, followed by Brisbane with over 3,160 new beds for the 2027 academic year.

According to Savills, this signifies a massive shift in sentiment, with both Perth and Brisbane receiving their first new PBSA supply since 2022.

This burgeoning development pipeline is supported by robust rental growth. Savills’ Student Accommodation 2024 Report has revealed an uptick in rents across all major cities since 2022 – most notably in Perth, Brisbane and Sydney – coupled with strong occupancy rates.

“Globally the Student Accommodation sector is set to recover in 2025, with investment up 23% annually worldwide, driven by a more favourable macroeconomic backdrop. With major central banks pivoting on interest rates, the balance of risk is gradually shifting in favour of deploying capital,” said Conal Newland, Head of Operational Capital Markets at Savills Australia and New Zealand.

PBSA emerging from uncertainty

While the beginning of 2024 was characterised by universities, developers and investors all investing for growth, the PBSA sector faced legislative challenges in the wake of high migration, coupled with a rise in operational expenses.

Migration and its impact on the housing crisis were a hot topic for the Federal Government this year, with increased pressure on housing markets in major cities. By mid-2023, international students entered the country faster than they left, with net migration reaching a whopping 300,000 – triple the historic trend of 100,000. According to Savills, this coincided with rampant rental growth and record low vacancies across all residential markets.

The Federal Government deliberated on the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024, and were set to ratify its National Planning Level limits with a cap on overseas student enrolments as of January 1, 2025.

Despite the ESOS bill being rejected, the impact of migration remains a key consideration in the leadup to the next election, with the threat of student caps still front of mind for investors and developers.

Supply reaches post-pandemic high as developers increase project bed numbers

In spite of proposed legislative changes and ongoing feasibility challenges, developer confidence in Australia’s PBSA sector remains high, according to Savills. The largest delivery of new student accommodation since the pandemic is set to come over the next three years, with over 12,000 new beds in projects that are fully funded and committed.

Interestingly, the report reveals an emerging trend toward larger projects, with new PSBA developments comprising an average of 540 beds compared to 498 beds – a further indicator of confidence in the sector.

Savills says that the delivery of new PSBA stock has been supported by consistent rental growth and strong occupancy. In Perth, rental rates for student accommodation have increased by a CAGR of 19.7% since 2022. Brisbane rents also increased by 16.1%, Sydney by 10.4%, Adelaide by 6.7% and Melbourne by 6.1 during this time.

“Rental growth over the past three years has been crucial to building investor confidence, offsetting feasibility challenges caused by escalating costs for construction, financing and operations,” said Mr Newland.

Sydney is earmarked to be the standout performer with 4,300 beds completing ahead of the 2028 academic year, largely driven by new pipeline through the Anzac Parade corridor and Macquarie Park.

After two years without new PBSA supply, three major projects are now under construction in Brisbane — including Stage Two of the University of Queensland Residences Masterplan. These projects will deliver over 3,160 beds combined and are expected to open for the 2027 academic year.

Similarly, Perth will soon see the delivery of its first new student accommodation since 2022, which includes one new project in the CBD, along with several others located near suburban universities.

2026 will be the first year in a decade without any new PSBA supply in Melbourne, with a delayed recovery forecast for 2027 when 1,500 new beds are set to open.

Diversification drives PSBA investment

According to Savills’ Student Accommodation 2024 Report, potential vendors of Australian PSBA assets have postponed disposals in recent years amid concerns of not meeting price expectations – limiting the volume of stock coming to market. This has lowered transactional activity, inhibited price discovery, and restricted the inflow of global capital.

However, the recent Savills Australian and New Zealand Living Sector Investor Sentiment Survey shows an increasing trend toward diversification amongst Australian investors, who are pivoting away from traditional core sectors in favour of a ‘beds’ strategy.

The Survey revealed that Student Accommodation is a preferred investment sector, with 58% of respondents indicating they intend to increase exposure to PBSA over the next two years.

With the barriers to acquiring operational assets remaining high, there has been little movement amongst the dominant players in the PBSA sector over the last year.

Scape remains the largest manager of PBSA assets, further boosting its portfolio with two Journal Student Living assets (1,391 beds), for which Scape secured asset management rights effective from August 2024. Scape now manages up to 22,500 beds, almost three times the size of Iglu – the second largest vertically integrated off-campus PBSA platform.

Savills forecasts significant new capital allocations will be made in 2025, with some markets expected to see yield compression.

“There are PSBA assets and a portfolio rumoured to be close to trading – these will provide key pricing points in the early recovery cycle and test investor appetite. Sales activity will buoy wider market sentiment and provide a catalyst for increasing transactional activity. Top tier assets are already seeing more competitive action – particularly in those markets where the fundamentals are strongest,” said Paul Savitz, Director of Operational Capital Markets at Savills Australia and New Zealand.

Stakeholders should brace for headwinds, says Savills

Despite the strong uptick in rents seen since 2022, Savills predicts rental growth will slow across Australian capitals over the next five years, varying according to each city’s new development pipeline.

“The average operating cost for PBSA also continues to rise, increasing by 23% annually since 2022, with increasing utility and staffing costs compounding with the introduction of additional taxes. Growing costs have impacted the feasibility of development projects,” said Mr Savitz.

The flow of international students leaving Australia post-study continues to accelerate, returning net migration to historical levels. The annual net change in migration is expected to fall back to +77,000 by the end of March 2025, and continue to trend downward to +65,000 by the end of June 2025, according to Savills.

“As we approach 2025, it is essential for all stakeholders – universities, developers, investors, and policymakers- to remain agile and prepared for potential regulatory changes and consider the longer-term implications for Australia’s international education sector and housing markets,” said Mr Newland.