Australia’s PBSA sector: A market poised for growth

Australia’s Purpose-Built Student Accommodation (PBSA) sector is experiencing a quicker-than-anticipated recovery following the COVID-19 pandemic. The sector’s reliance on international student demand was highlighted during the pandemic when asset occupancy levels declined significantly. However, the sector began its recovery with the progressive reopening of international borders in early 2022, and strong rental growth through 2023. The return was further bolstered in 2023 with China’s mandate requiring in-person learning for all students enrolled in foreign universities. Now, the sector is experiencing a demand spike led by the influx of international students.

Australia’s consistently strong university rankings, proximity to Asia and quality of student life are key factors to the nation’s reputation as a top destination for higher education. Following the downturn during the pandemic, Australia has seen a rebound in population and an uptick in student enrolments. In the 12 months to June 2023, the nation’s population growth rate reached 2.4%, surpassing the pre-pandemic peak of 1.5% and the historical average.

Our analysis of Australian Bureau of Statistics (ABS) data shows that temporary higher education visa holders accounted for 33.9% of net overseas migration in FY 2022-23, versus the long-term average trend of 21.1%. With Australia set to have one of the strongest population growth forecasts globally, we can expect temporary higher education visa holders to follow the same growth trajectory.

Figure 1: Net Overseas Migration

Source: JLL Research, ABS

The education sector plays a significant role in contributing substantial revenue to Australia’s economy, with China traditionally leading as the largest source of overseas students. In FY 2022-23, China contributed AUD 8.7 billion to Australia’s education export income, representing 24% of the total revenue. However, India is rapidly emerging as a major contributor, generating AUD 5.9 billion and accounting for 16.3% of Australia’s total education export income during the same period.

With India’s middle class growing at the fastest pace globally, the demand from Indian students is expected to continue its upward trend. While growth is anticipated from other countries such as Nepal, Colombia, and the Philippines, these are projected to increase at a comparatively modest pace. The influx of students from India is reflective of the diversifying landscape of international students in Australia.

Figure 2: Advanced Economies – GDP and Population (2023-32 p.a.)

Source: JLL Research, Oxford Economics

The challenge facing Australia’s PBSA sector lies not in demand but in supply. The rebound in international student enrolments has exacerbated the demand-supply mismatch within the sector, further emphasising the urgency for new developments. The solutions for the supply shortage are complex, including elevated construction and labour costs, planning difficulties, limited land availability and high financing costs. Despite the projects underway in the development pipeline, they still fall short of the projected future demand.

Australia’s PBSA sector is positioned for substantial growth, shaped by the return of international students and the evolving demographics of the market. Although hurdles remain, the sector presents opportunities for investment and development. Strategies that address affordability and sustainability while satisfying demand will be crucial for Australia’s PBSA market, and ultimately, the sector’s ability to adapt and expand will shape its path for years to come.