Growthpoint Student Accommodation REIT’s three new university student residences opened for the 2023 university academic year have outperformed expectations. The company intends to expand its portfolio with two newly developed student accommodation properties in 2024 and has a strong pipeline of growth opportunities for the future.
Growthpoint Student Accommodation REIT was launched in December 2021 by Growthpoint Investment Partners, the co-investment business of SA REIT Growthpoint Properties, as South Africa’s first unlisted, purpose-built student accommodation REIT.
“Our entry into this sector was driven by strong fundamentals where demand exceeds supply,” says George Muchanya, Head of Growthpoint Investment Partners.
A year after launching, Growthpoint Student Accommodation REIT opened three new properties for the 2023 academic and all surpassed expectations. Apex Studios in Braamfontein, Johannesburg, and Peak Studios in Observatory, Cape Town, have occupancy rates of 100% and 98% respectively. The acquired Brooklyn Studios in Pretoria is 97% occupied. Overall, its 7,157-bed portfolio is 94% occupied for the 2023 academic year, supported by the appeal of the new Thrive Student Living by Growthpoint brand name, which has proven to resonate with the target market.
It aims to maintain consistent growth in the coming years, expanding its assets and investor base as it grows. Ultimately, its target is to grow the portfolio to R12bn worth of assets and achieve a stock exchange listing within the next seven years.
It has two new developments underway to be completed in time for the 2024 academic year that will add a further 1,610 beds to its portfolio. Fountains View (formerly Capitol Gate) will provide 810 beds optimally located for Tshwane University of Technology students in Pretoria. Horizon Heights, an 800-bed property in Johannesburg, is perfectly positioned for the University of Johannesburg students. Moreover, it has already identified nearly R1bn of property development projects for the 2025 and 2026 academic years.
“While each building added to the portfolio is unique in its architecture and design to reflect and foster its specific community, they all have the advantage of being purpose-built and operated,” explains Amogelang Mocumi, Fund Manager of Growthpoint Student Accommodation REIT.
Purpose-built student accommodation is located and designed around students, to help them succeed and make the most of their university experience. It gives parents and bursary providers peace of mind, knowing that students are in the best possible environment.
Growthpoint’s Thrive Student Living accommodation provides amenities like study areas and games rooms, backup power and water, as well as its Student Life programme which offers 24/7 support to students for academic performance, physical health and mental wellness.
“Supportive environments boost academic success and graduation rates. Young graduates face a 10% unemployment rate, compared to 30% for unqualified youth according to the StatsSA Quarterly Labour Force Survey for the first quarter of 2023. Investing in student accommodations leads to more graduates, positively impacting the economy and society,” adds Mocumi.
These long-term socioeconomic impacts, together with the fact that Growthpoint Student Accommodation REIT will undertake new developments which boost job opportunities and municipal infrastructure, make it a compelling proposition for impact investors to participate in this alternative asset class that has strong fundamentals and proven resilience.
It has already attracted investment from large institutional investors, investment holding companies, family offices and sponsors Growthpoint Properties and Feenstra Group are also investors, ensuring a good alignment of investor interests.
Growthpoint Student Accommodation REIT aims for total returns of 13-16% in the long-term returns, even if it falls short of this in the current high interest rate climate. It is subject to excellent governance and sustainability oversight frameworks. It also benefits from Growthpoint’s recognised green building leadership, creating healthy, sustainable environments and operating with a social consciousness that adds value to communities. Fashioning vibrant campus communities aligns with Growthpoint’s ESG goals.
As with most property sectors, it hasn’t been all plain sailing for student accommodation. With the National Student Financial Aid Scheme (NSFAS) unexpectedly capping the annual student accommodation allowance to R45 000 for the 2023 academic year, the student accommodation sector has faced headwinds this year. Approximately 60% of the Growthpoint Student Accommodation REIT portfolio is exposed to NSFAS students, with private students having a variety of accommodation available at different rates.
With industry peers, through the Private Student Housing Association, Growthpoint Student Accommodation REIT is engaging with NSFAS to adopt a higher cap from the 2024 academic year – one that more suitably reflects the costs to build new accommodation or the capital already invested in existing assets. We are also awaiting the outcome of discussions between universities and NSFAS on the grading of properties as this will alleviate the one-rate-fits-all challenge.
“The NSFAS cap has, unfortunately, added some uncertainty to this property subsector. It is significantly eroding the margins to unsustainable levels given the rising municipal and utility costs. Sustainable solutions need to be found sooner ahead of the 2024 academic year. Left unaddressed, it is likely to deter investment capital for NSFAS-focused student accommodation. This will be detrimental to the neediest and most vulnerable portions of the student population,” says Muchanya.
Nonetheless, because demand for specialised student accommodation in South Africa far outstrips supply, the sector still holds attractive investment opportunities.
“Growthpoint Student Accommodation REIT is an investable business underpinned by an investable asset class with lots of potential, notwithstanding the NASFAS challenges. Our modern, purpose-built accommodation provides a great alternative for private students and corporates sponsoring students to what they can get on-campus or in student digs,” concludes Mocumi.