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Surging immigration is being led by international student arrivals, with demand for accommodation likely to continue rising, according to a new report.

Savills’ Australian Student Accommodation 2023 Report has found that the development pipeline of new student accommodation is already declining, with the total number of new student beds dropping by more than 50% compared to the last three years.

The report found that student accommodation is also likely to see steady rental growth in 2024 and a shift away from the inner-city suburbs of Sydney and Melbourne.

The report forecasted that Sydney will be a standout performer compared to the other capitals over the next five years. This is due to demand for popular universities like the University of Sydney and the University of New South Wales, along with an influx of lifestyle students and a historic undersupply of accommodation.

Brisbane rents, however, are expected to slow over the next half-decade due to new supply and affordability ceilings being hit.

The report also found that the number of international students now in Australia is at a record level.

In the year to September 2023, there were 618,350 international student arrivals to Australia, up 88% from the previous year. Savills said international student arrivals are forecast to surpass 2019 levels in 2024 and grow to close to one million by the end of the 2025 academic year.

Savills director of operational capital markets, Paul Savitz said, “This boost in international student arrivals comes after Australian universities advised a return to in-person course delivery this year, with the Chinese government also requesting its students to return to destination universities.”

“This catalysed a rapid bounce-back in demand for higher education in Australia, which has caught many universities by surprise,” Mr Savitz stated.

The lower Australian dollar has been a factor in driving demand from international students, however, they predict this could change if the exchange rate firms over the course of the year.

According to Savills’ Head of Operational Capital Markets, Conal Newland, the student accommodation sector remains a favourite among investors, despite economic uncertainty, higher construction costs and the elevated cost of debt. This is because the student accommodation sector offers consistent returns.

“Unlike many other real estate sectors, rents can be rebased every six months, or even every semester – keeping pace with inflation and adapting to a shifting economic environment,” Mr Newland said.

“These features will maintain the comparative attractiveness of the sector for investors and may lead to a further rebalancing of real estate portfolios away from commercial assets and towards residential assets such as PBSA, supporting the sector’s continued growth.”