A growing number of foreigners at Tokyo universities is creating opportunities in Japan’s emerging student accommodation investment market.
Japan had 2.89 million students in higher education in 2017 (up from 2.82 million the previous year). Of that number, 1.5 million attend university in the capital, Tokyo, more than four times as many as London.
But, unlike London which has several hundred purpose built student accommodation (PBSA) facilities catering for its student population, Tokyo is struggling to house its new residents.
PBSA investment has grown in popularity in recent years, due to its secure income returns. But the sector is so far largely limited to the UK, USA and Australia, where global investors such as GIC Private have invested in specialist operating platforms.
The emergence of student accommodation in Japan as an opportunity for real estate investors is “mainly being driven by the Japanese government’s push to increase the number of international students at Japanese universities,” says Pelham Higgins, Head of Industrial & Alternatives Capital Markets – Japan & Korea, at JLL.
The number of foreign students at Japan’s universities rose 12 percent to 267,042 last year, suggesting a target of 300,000 international students by 2020 will be met. The Japanese government is keen to boost earnings from education and has nominated 37 universities as ‘Top Global Universities’, where the bulk of growth is expected.
Higgins says: “The government is providing a financial incentive to the universities if they have a certain quota of international students on their books.”
“In order to attract these international students, the universities need specialist accommodation.”
80 percent of Japanese students choose to live in private rental accommodation when attending university in their home country. But, “this is impractical for foreign students, due to language difficulties and the fact that landlords will often refuse to lease to foreigners,” says Higgins.
An emerging sector
Some early movers are already taking advantage.
Sector specialist GSA, which also operates PBSA brands in the UK, China and Australia, set up a Japanese joint venture in 2014 with Star Asia Group. It has developed its first facility in the Hakusan area of Tokyo’s Bunkyo-ku district, comprising 364 beds, which is operated under GSA’s Uninest brand. GSA says it plans to build a 20,000 bed portfolio in Japan.
Meanwhile, Japan’s Itochu Corporation has launched the Crevia Will student housing brand, which is marketing international standard accommodation, with cafeterias, gyms and other shared spaces, at a number of locations in Tokyo.
Last year, Mizuho Financial Group launched a JPY10 billion student housing fund and said it would begin work on three facilities with the aim to complete 10 within two years. The fund will invest both in buildings which can be adapted to student accommodation and also in new developments.
Land will be a challenge for prospective developers of purpose built student housing, says Higgins, “it will be especially difficult to find land close to universities for the right price”.
Most universities in the Greater Tokyo area are located in the Central 5 Wards, where land prices have increased 23 percent since 2009, compared with only 8 percent for the wider 23 wards of Tokyo.
In the longer term, student accommodation providers hope domestic students will also be attracted by the quality and security of specialist housing – furthering the opportunity.
Higgins says: “International student accommodation businesses will need to tweak their offer to suit the Japanese market as they gain experience here. Often, international brands have struggled initially, before they adapted their offer to the local market.
For example, most Japanese apartments feature a tiled area with shoe storage near the entrance, as outdoor shoes are not worn in the home. Baths in ensuite facilities are another common demand for Japanese students.
“Student accommodation providers will not simply be able to reproduce what they have in London or Sydney in Japan and expect it to work here.”
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