The latest research from JLL indicates that the demand for new purpose-build student accommodation in Sub-Saharan Africa (SSA) is set to exceed 500,000 beds over the next five years. With continuing public sector budget constraints, private investors will have an important role to play in meeting this demand.
SSA’s economic prospects are improving, with a number of macro trends creating an urgent need for better real estate infrastructure. Within this environment, a vital component is student housing and in certain parts of the continent it is set to emerge as an attractive new asset class (similar to the UK and the US).
Philip Hillman, Head of Student Housing for JLL EMEA comments, “There has been an unprecedented increase in the number of student enrolments across SSA. In the period 2000 to 2014 period, the SSA tertiary gross enrolment ratio rose from 4.3% to 8.2%. This trend, when coupled with a growing tertiary-aged population, suggests that demand for purpose-built student housing should grow rapidly over the medium term.
The analysis of the impact on demand for purpose-built student accommodation should the SSA tertiary gross enrolment ratio rise from 8.2% to 10.8% over the next five years (a conservative estimate) indicates that:
- The number of tertiary aged young adults (aged 18-25) in SSA will increase to just under 100 million by 2020.
- Around 15% would prefer and afford purpose-built student housing (a cautious percentage considering some 41% of the UK market stay in student accommodation).
- Only 19% of the tertiary-enrolled student population that applied for student accommodation could be accommodated in 2011, highlighting the growing demand.
- Based on these assumptions, well over 500,000 beds would be required.
- It will cost around $US 3.6bn to fund the construction of this deficit.
- Given constrained government education budgets, there is minimal room within which to increase public expenditure in SSA, creating a substantial student housing funding gap.
- It is within this setting that the private sector could play a pivotal role in addressing the increasing needs of the market.
Hillman says that while there are a number of challenges in the purpose-built student accommodation market, the opportunities are strong:
- Buoyant demand which is expected to continue, exacerbating the chronic shortage.
- Many on-campus development opportunities, due to the limited funding capacity of universities to start new student projects.
- A need for operational expertise in this niche sector.
- Under-served markets present valuable first-mover advantages.
Hillman adds: “The global market has evolved and investors now have a greater variety of vehicles and structures at their disposal, with many now available in SSA. The direct ownership method is currently the most popular, with private developers providing the vast majority of student housing in SSA. Private developers that directly own their developments carry the largest risk but pocket the greatest rewards, as they are in a position to earn the highest yields and rentals that the market can afford.”
Public Private Partnerships (PPP) and joint ventures also allow for direct ownership in developments and mitigate the risk exposure of owners. The PPP vehicle enables universities to access private funding in a transparent and low-risk manner while keeping their focus on education, preserving debt capacity, and benefitting from the third party’s experience in building facilities in an operationally cheaper and faster manner than universities are capable of doing. Universities in Kenya and Ghana have recently concluded large PPPs agreements for the provision of student housing. South Africa has to date only implemented one.
In more mature markets, like Southern Africa, private players with property management experience and the balance sheet to invest could focus proportionally more on converting, upgrading and maintaining existing building stock, provided there is existing infrastructure close to universities in these markets. While in East and West Africa, outside densely populated urban areas, a greater focus needs to be placed on new developments. There is also a significant need for PPPs across the continent due to the large amount of on-campus development opportunities that are still available.
“There is substantial evidence within the current landscape that the private sector will become progressively more involved, because student housing projects in SSA are not only viable, but are among the most attractive investments one can make on the continent,” Hillman concludes.