Canada is in the midst of a housing shortage, and purpose-built student housing is no exception.
Compared with other countries that offer similar educational opportunities, Canada is lagging in its ability to house students. The purpose-built student housing provision rate — the rate of total beds versus total students — is just 10%. In the UK, for example, that number is 30%.
Data, research and advisory firm Bonard hosted its first Toronto Student Housing Summit this week, delving into Canada’s student housing shortage and what opportunities lie ahead for the asset class. Here are Green Street News’ four key takeaways from the event.
Staggeringly low student housing provision rate highlights major opportunity
Canada’s student housing provision rate varies widely across cities, from 5% in Winnipeg to 35.6% in Waterloo. But even in cities with more supply, there’s still plenty of opportunity to be had for investors to build student housing near postsecondary schools.
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“We’ve all heard the argument Waterloo has so much it’s oversupplied,” said Jonathan Turnbull, head of Canada at Harrison Street, an alternative asset management firm. “I haven’t heard of anyone that’s lost money in Waterloo, but more importantly, when you compare that to the U.S., a 35% provision rate, that would be a signal to rush into that market — way undersupplied, huge opportunity.”
Canada’s student population is growing, not only from international students but domestic students as well, and the consensus is that even with caps on international students, supply-and-demand conditions won’t change any time soon.
“When you compare that to the US, a 35% provision rate, that would be a signal to rush into that market”
Jonathan turnbull, Harrison Street
Bonard has identified 71 student housing properties coming online across Canada in the next few years that will add roughly 22,000 beds. “But at the end of the day, the pipeline is not enough and it’s not catching up,” said Martin Varga, real estate business development director at Bonard. “From the calculation, we saw the total provision rate should improve, with adding those beds, only by 0.5%.”
Investors in the space pointed to cities such as Hamilton, Kingston and Montreal as markets ripe for student housing development.
More capital is coming in
Getting capital to fund new student housing projects was described as a bit of a chicken and egg scenario: More demonstrated exits on student housing deals are needed to bring in more capital, but it’s difficult to have those without that capital in the first place.
Although investors historically have been more hesitant to fund student housing projects, the tides started to slowly change in the last few years. Turnbull noted that Harrison Street is now on track to have its most successful quarter ever in raising capital.
Unwavering demand aside, those in the space have found the benefit of student housing over typical multifamily rental properties to be twofold. Ernestas Kazbaras, a partner at 1 Asset Management, noted that even during the pandemic, his company’s student housing assets saw 90% to 95% occupancy rates, demonstrating the asset type’s resilience even during difficult times.
What’s more, yearly turnover allows housing providers to maximize rents and keep pace with inflation. Turnbull added that of all Harrison Street’s asset types, student housing is the No. 1 performer.
Major universities are the play
Colleges, although also woefully underserved when it comes to student housing, are not what investors are eyeing for future development opportunities. Areas surrounding major universities are the preferred target.
The reasoning is due to program structure: Colleges typically have shorter programs of one to two years, often with co-op components that can see students relocate to different cities. University students, on the other hand, are typically enrolled in four-year programs and are viewed as more stable tenants.
That being said, developing around major universities is not without its challenges, namely the fact that those schools are typically in larger cities with limited available land. At several points, speakers mentioned opportunities in cities such as Toronto, Vancouver and Montreal with more robust public transit to build student housing further out from campuses that could then serve more than one school.
Schools are looking for partnerships with private developers
To date, the majority of student housing can be found on school campuses. But the burden of independently providing enough beds for every student isn’t one the schools can shoulder.
“Not every university in Canada is a UBC that has one of the largest land holdings, that also happens to have a robust real estate development department who are also nimble, have access to equity and actually know how to run a development project,” said Dayna Gilbert, managing director of real estate development at Forum Asset Management.
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Instead, some universities are looking to partner with private developers to get more housing built. Amal Awini, director of housing and conference services at York University, said the school is open to such partnerships and is already working with one partner.
Anne Macdonald, assistant vice president of spaces and experiences at University of Toronto, noted that the school both has existing relationships with private partners and is actively seeking new ones.
“We want the partnership to work for the institution, obviously, and we want to make sure that our students are supported, are successful, and that we have influence over the design of the building, over the operation of the building,” Macdonald said. “We don’t need to do it ourselves, but we need to have influence over these things.”
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