Emerging market student accommodation attracts investors' attention

As education levels improve and millions more students attend universities in the BRICS countries (Brazil, Russia, India, China, South Africa), emerging market student accommodation as a sub-sector of commercial property is attracting the attention of forward-looking investors.

“This is an untapped market, particularly in emerging economies,” says CEO of student accommodation specialists, Aengus Investment Properties, Richard Rubin. “Whether you’re in Rio de Janeiro or Accra, there is a severe shortage of safe, secure, affordable accommodation for students globally. It’s proving to be an excellent investment opportunity regardless of macroeconomic conditions affecting the property environment.”

Historically, accommodation for students has been provided by tertiary institutions themselves, but as operating budgets are slashed and property becomes increasingly expensive to acquire and maintain, many universities are outsourcing the provision and management of student accommodation to independent companies and in many instances partnering with them to do so.

In Europe, listed student property funds have been around for quite some time. Publicly quoted players such as Unite PLC and Opal are well known to equity investors; however a niched emerging market private fund, such as Aengus is new.

The company, which has nearly 10 000 student beds in its international portfolio, has pioneered up-market student accommodation in South Africa and has now set its sights on expanding into Africa and South America.

“The fundamentals of the market remain strong: insatiable demand, consistent revenue streams and above-average investment returns.”

Aengus has been in the property game – mostly urban renewal projects – for nearly a decade, but started buying up buildings and converting them to student accommodation about six years ago.

“Universities simply couldn’t provide enough accommodation for the increasing numbers of students,” says Rubin. “We started by converting one or two inner-city buildings in Johannesburg, South Africa from offices into residential accommodation suited for students and within weeks of opening, all our buildings were fully leased.”

Since then, growth has been phenomenal – Aengus now has 7 000 student beds in South Africa, including Johannesburg, Port Elizabeth and Durban. At the start of the 2013 academic year starting in January in South Africa, the waiting lists for the company’s student buildings already far outstrip the number of rooms available. The number of school leavers increases year-on-year.

“Key to our success has been understanding that students are not that different to any other type of residential tenant,” says Rubin. “They’re looking for safe, well managed accommodation in a convenient location.”

Aengus spent much time researching what students wanted and designs its buildings so students get the most out of their university experience. Rentals include fully furnished apartments or single rooms with all the mod-cons, including free access to broadband internet, as well as communal areas and services such as laundries and cafes, all situated close to campuses.

“Education is a massive investment for families and sponsors, so students are looking for value for money when it comes to accommodation. But this doesn’t mean cheap and nasty – these are discerning customers.”

Aengus works in partnership with higher education providers, as well as renting directly to students and corporate bursars, a growing funder of student accommodation as the demand for talent increases. Aengus manages the entire process from acquiring buildings, to converting them to student accommodation, renting and maintaining them.

“Because we’re used to the complexities of the South African market where the political and economic landscape is constantly changing, we’re well positioned to expand into other emerging markets where there is massive demand for our kind of offering,” says Rubin.

Outside of South Africa, Aengus has set up permanent offices in Rio de Janeiro, Brazil and Accra, Ghana. The company has partnered local players to ensure a low-risk approach to securing new deals.

The company’s first Greenfields student accommodation project with 2 000 beds has recently kicked off outside Accra, with plans to build more beds in the region soon. It will open its first student buildings in Brazil this year too.

Rubin says the company’s business model will also benefit from big events – such as the upcoming Olympics and Soccer World Cup in Brazil.

“Our business is designed to be sustainable beyond these once-off events, but we certainly score from renting out our student rooms to tourists during these peak periods.”

“By the end of 2013 we should have 3 000 student beds outside of South Africa and it seems opportunities for growth are endless,” says Rubin.

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