NSW MARKET OVERVIEW
NEW SOUTH WALES
Paul Savitz - Director, Operational Capital Markets at Savills Australia & New Zealand
Thank-you for the opportunity to share your insights as part of The Property Development Review publication - what are the key trends occurring across alternative asset classes (healthcare, student accommodation, self-storage, co-living or life sciences) so far in 2024. Reflecting on the deals that you’ve transacted in the first half of the year, how are you observing market sentiment amongst commercial property investors & do you anticipate any material shift in sentiment or activity over the course of the next six months. In the context of a challenging macro environment in Australia, operational PBSA has traded at record occupancy in Semester One 2024, and rental growth which has disincentivised owners to sell assets, alongside significant recouping of lost ground in the market after the rebound from Covid-19. Consequently, this has meant very limited stabilised opportunities being offered to the market. The student accommodation market remains globally an attractive and strong performing asset class and continues to be underpinned by a structural imbalance of limited opportunities and growing amount of interest. We anticipate that liquidity will return, and transaction volumes will bounce back in the second half of the calendar year.
In terms of capital, what’s driving investor interest into alternative asset classes over & above more traditional real estate sectors. Aside from supply / demand characteristics, other factors supporting investment in the student accommodation sector, particularly when compared with other residential investment asset classes include the potential to secure commercially driven income streams with annual or biannual rent reviews; rental growth and an inherently lower risk profile because of the ‘granular’ nature of the income / tenant profile. These factors have become increasingly important since inflation started rising across Australia in early 2022. Investors have historically been attracted to the yields compared to other asset classes and more mature student accommodation markets such as the USA and the UK. Although certainly not immune to economic downturns, or external shocks such as the closure of international borders, it is viewed as a resilient asset class and has demonstrated counter- cyclical characteristics in comparison to wider property market movements. There is a chronic undersupply of student accommodation in all Australian capital cities which is leading to strong occupancy and rental growth across all markets. New entrants to the market have arrived seeking to diversify their capital into the broader living space.
PAUL SAVITZ
24 – July / August 2024
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