Canadian student housing has been gaining momentum as an investable asset class in recent years, and it continues to draw in new players.
Builders, investors, lenders and operators came together this week at Bonard’s Student Housing Summit, in Toronto, to discuss the vast opportunities in Canadian markets.
From European capital’s increasing interest in the space to the investor education that is still needed, here are Green Street News‘ key takeaways from the event.
Canadian student-housing fundamentals are strong
Student-housing fundamentals in Canada remain strong, with Bonard finding just a 15% student-housing provision rate across the country – much lower than in countries with comparable postsecondary education opportunities. In the U.K., the provision rate is 37%. In France, it’s 25%, and in Germany, it’s 26%.
Of the purpose-built student accommodations in Canada, a minority – 33% – are from private operators. The remainder are university-run beds, Bonard said, leaving room for substantial growth in the private sector.
Despite the caps put on international student visas last year, private student-housing providers say they didn’t feel the effects to any large degree. The caps primarily affected colleges, while student-housing operators have focused their portfolios around major universities. Canada also has a large population of domestic students who move to other cities or provinces for school, ensuring consistent demand.
More interest from condo developers and European capital
Canadian student housing is piquing the interests not only of alternative asset investors, but also traditional condominium developers. As the condo market remains at a standstill, and student housing continues to be one area of development that pencils out, some developers are considering changing the tenure of their proposed developments.
“The reality is, the way that we can configure these assets by having higher densities than you can with traditional multifamily, we can make the math work,” said Jonathan Turnbull, head of Canada for Harrison Street. “We’re looking at three projects in the GTA, [and] we’re looking at three projects in Vancouver – all ex-condo sites because the math actually works with the higher densities.”
It’s not just Canadian firms that are interested in Canadian student housing. European capital is taking note as well, particularly since the election, Turnbull said.
“Half of my investors are Europeans. They see the opportunity in the Canadian market,” Turnbull said. “They understand it, and there’s more of a kinship now with investors in Europe who sit there and say, ‘I see what’s going on, and if I’m going to allocate capital to North America – because as an insurance company, I have a real estate allocation in North America – I used to always go 100% into the U.S., maybe I’ll do 75%, maybe I’ll do 60%. Let’s start putting capital into the Canadian market.’ “
Aly Damji, managing partner of real estate for Forum Asset Management, Canada’s largest student-housing operator, said he has heard a similar sentiment from European investors.
“I happened to be at an event a few weeks ago in Spain, and it was very clear to me that Canada stands out in terms of the supply-demand imbalance, with the backdrop of high barriers to entry to build,” he said. “When you look at development terms in Toronto, Vancouver, etc., that makes it a very compelling place to invest.”
Market education is still needed
Private student housing as an asset class is still small in Canada, with less than 60,000 privately owned student-housing beds across the country, according to Bonard. That number is expected to grow to just shy of 66,000 in the next five years. Despite the clear need for more beds, much education is needed around private student-housing providers, both with the universities and the students themselves, to grow awareness of the offering.
“We’re in Victoria – there is no fully furnished anything in Victoria,” Turnbull said. “We know they want them; they’re just not used to seeing them, and I think that’s something which is still a push every day in Canada.”
Turnbull also pointed to the need for student-housing providers in Canada to create a consistent brand for their buildings, similar to how many European providers operate, rather than having individually branded buildings.
“That earns a level of trust amongst parents, students, universities and governments,” he said.
With limited land availability near universities in major cities, partnerships with universities can be key to getting student housing built.
“There is a dire need – and schools are realizing this – for greater investments, greater partnerships to create more opportunities for housing,” said Christian Huggett, managing director and head of development for Podium Developments.
Forum’s Damji highlighted the benefits of partnering with universities in Ontario, where Bill 185 exempts development on university-owned land from the Planning Act. That exemption saved Forum a year of time and substantial costs on a recent project, he said.
Many panelists also spoke to the ability to free up traditional multifamily units with the creation of more student housing – a point that should be of interest to various levels of government as the country continues to grapple with an affordable-housing crisis. Joe Persechino, chief operating officer of global student-housing brand Yugo, said their firm completed a study that found for every three students they were able to house, it freed up one home.
Rent-price pressure likely coming
The topic of affordability was present throughout the day. Although student housing enjoyed significant rent growth in recent years, “pocketbooks are not unlimited,” said Ho Tek, partner at Domus.
“When your university education costs $7,000 and your housing costs $12,000, we might be one of the only markets in the world where that’s the dynamic, and I think we’re going to start to see some pricing pressures coming in,” Turnbull said.
Daniel Goodfellow, founder and president of Werkliv, agreed that student housing “should be a launch pad, not a trapdoor,” while Andrew Parr, associate vice president of student housing and community services at the University of British Columbia, said affordability in student housing is “the most complex issue [they] deal with.”
UBC has created so-called nano units – 144 sq ft with a bed, a desk, a full bathroom and a kitchen. The school has 77 of these unit types, and Parr says there has been huge demand for them.
Tek noted that although buildings can’t be filled with minimal effort like they could a few years ago, Domus was able to achieve full occupancy in Waterloo – Canada’s most saturated student-housing market – by offering mid- to low pricing.
