September 26, 2019

Education providers are looking to CBD offices in Australia to attract international students demanding better safety, connectivity and enhanced amenities.

Competition among institutions is heating up as Australia boasts a A$30 billion a year international student market.

Education is the “sleeping giant” of office demand, says Darren Krakowiak, director, Tenant Representation, JLL.

“There is significant evidence that shows students’ concerns are with quality of life as much as their studies, and this is enhanced by access to urban amenities. What we’re now seeing is universities respond,” he says.

The sector is following a broader trend of businesses centralising their operations in areas close to transport, restaurants, bars and gyms, because of the growing emphasis on talent attraction and retention.

Robberies and attacks on students that have hit headlines of late have also focused on the need for students to be in more highly connected environments.

In Melbourne, which ranked third globally in the 2019 QS Best Student Cities Ranking, the education sector has accounted for an average 10.1 percent of CBD office take up over the past five years, increasing from 4 percent over the previous five-year period.

The story is similar in Brisbane, where the sector accounted for an average 4.9 percent of CBD office take up over the past five years, increasing from 2.2 percent over the previous five-year period.

In Sydney, the sector accounted for an average 5.7 percent of CBD office take up over the past five years, increasing from 3.2 percent over the previous five-year period.

Student accommodation is also booming, with 12,000 beds to be added to the market in 2019, and a strong supply pipeline, especially in Melbourne.

Projects are targeting CBD locations in Brisbane and Adelaide in particular, where there is good access to development land, as well as transport to universities.

Finding space
To secure favourable CBD offices, education providers face the challenge of navigating Australia’s office markets, which have some of the lowest vacancy in the world. In Melbourne CBD office vacancy is 3.8 percent, in Sydney it is 4.1 percent.

Victoria University’s new 32-storey ‘vertical’ campus in Melbourne’s CBD, which consolidated its city campuses into one new City West Precinct, was built on land previously owned by the university. The university went to the market with a design and invited expressions of interest for a partner to buy and develop the land, which it would lease back for 30 years. ISPT now fully owns the asset.

Other education providers are taking backfill space in repurposed offices, and leasing space in buildings clustered in certain locations.

Monash College is taking 40,000 square metres at 750 Collins Street in Docklands, Melbourne, after the building was vacated by AMP and public transport operator V-Line.

In Perth, Curtin University has added another CBD location to its portfolio at the heritage-listed building 137 St Georges Terrace.

Curtin University’s Vice-Chancellor Deborah Terry says the CBD location “will help the university collaborate more deeply with diverse organisations”.

Meanwhile, the University of Technology Sydney has a growth strategy that takes advantage of connectivity to Central Station and the surrounds near Ultimo and Darling Harbour.

Different tenant, different needs
Student-facing university tenants demand a different approach to service, asset management and rent negotiations to corporates.

Increased movement of people and classes outside typical business hours will put more stress on building systems and potentially other tenants.

However, benefiting landlords is the sector’s capacity to absorb significant amounts of space in a single transaction, strong covenants, and a lower propensity to move out, says Krakowiak.

Adding students to the tenant mix can also be a strategy for boosting a sense of community in buildings as they typically hold events that attract new visitors and create demand for a more diverse food and beverage offering.

”Other tenants may be attracted to collaboration opportunities, such as market-aligned courses and research partnerships, as well as access to ready-to-work recruits,” he adds.

Long-term demand
Six of the world’s 30 highest performing cities for ‘desirability’ in the QS survey are Australian: a record bettered by no other nation.

The results underscore a long-term trend for education providers to continue to provide optimum locations for prospective students, says Krakowiak.

“Melbourne’s status as a top-three global education destination will create more opportunities for investors looking to capitalise on further growth in this sector. An increasing concentration of education uses in the Melbourne CBD may see some decentralisation by other sectors, as demand for space intensifies.”

Click to read about how A-REITS are capitalising on cheaper debt.


Darren Krakowiak

Director, Tenant Representation, JLL Australia

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