Markets & Finance
Student hostel developers reap on high demandFriday September 23 2022
Developers of purpose-built student accommodation (PBSA) are enjoying higher returns compared to those specialising in prime residential homes, driven by high demand for hostel space in the city.
Realtor Knight Frank said in its half-year 2022 report that the rental returns for student housing stood at eight percent in the period, while that of residential properties is at four percent.
The higher returns are driven by the undersupply of housing for students in the country, coupled with high demand as a result of the growth in student numbers over the years in line with the expansion of tertiary education.
While Kenyan developers have been setting up student hostels for years, the concept of building high-quality units for university students with specialised facilities like shared kitchens, common study areas and recreation facilities has only started to take root.
It is being driven mainly by Acorn Holdings Limited, which has set up units under its Qwetu and Qejani brands close to major universities—both private and public institutions.
“In Kenya, PBSA is proving to have higher yield (circa eight percent) than prime residential properties (circa four percent). Indeed, worldwide, it has been observed that PBSA is associated with slightly higher returns than primary real estate,” said Knight Frank.
“PBSA is also more resilient to shocks as it was observed during Covid-19 pandemic. However, it is soon expected that as investors strive to meet the demand, the yields will slightly fall to a level very near, if not similar, to traditional real estate yield.”
The student housing deficit in Kenya is over 200,000 units, according to the Ministry of Education. The pricing gap between on-campus accommodation and private hostels is also growing.
“With a steady gradual increase in university enrolments adding to the existing demand for student hostels in Nairobi, it is unsurprising that purpose-built student accommodation (PBSA) is becoming popular among investors,” the report read in part.
This type of investment has been resilient especially against economic headwinds compared to other types of property investments.
Most student housing facilities range from studios to flats with a cluster of up to eight rooms sharing living quarters.
It also comprises shared social spaces which provide amenities such as cable TV, laundry facilities and even organised social events, with others also offering gym facilities.
Public universities, which have had to contend with falling capitation from the government amid rising student numbers, have been unable to put in resources towards building hostels.
Universities have thus welcomed the developers—in some cases offering them land for the facilities through investment partnerships— in order to ease their accommodation burden and at the same time free up their limited resources to fund academic and research programmes which are at the core of their charters.