Student homes a bright spark for Dubai property market

The nascent sector has provided investors with yields of 8-9%, says CBRE

A computer-generated image of a common room in The Myriad Dubai. Courtesy FIM Partners

Though Dubai’s property market is transitioning through a downturn there's an upside in the market for student properties, where demand is forecast to continue growing while supply remains fairly inconsequential.

While the general property market faces an oversupply, there were just 5,200 beds for students across 20 projects in Dubai at the end of 2019, according to CBRE. The number of students pursuing higher education in Dubai alone during the 2018-19 academic year was 53,200.

“Historically, higher education has been primarily geared towards residents of the UAE. So, students whose parents happen to live and work in the UAE and as they grow, they need options for higher education. That’s really why there aren’t as many professional student accommodation [providers],” says Gabriella De La Torre, a director of CBRE's  Middle East, North Africa and Turkey region's consulting division.

Another factor weighing against the provision of dedicated student units has been the large amount of residential units on the market, with many students renting in residential communities.

“It’s really just where the market is compared to other markets,” Ms De La Torre says.

Of the 5,200 beds currently classed as student accommodation, most are in Dubai International Academic City. About 40 per cent are on-campus units provided by the universities and 45 per cent are in off-campus, university-affiliated accommodation. The remaining 15 per cent are in purpose-built student accommodation (PBSA), according to CBRE.

While PBSA is a nascent, but growing asset class in the UAE, it is a booming industry globally. In 2018 (the most recent year for which figures are available), the student housing segment attracted a record $16.3 billion (Dh60bn) of investment, according to Knight Frank. North America secured $6.3bn, followed by the UK at $4.8bn and EU countries with $2.3bn.

The first PBSA scheme to be built in the UAE was Uninest, a Dh110m, 424-unit project completed in 2016 by Global Student Accommodation, a company founded by Nicholas Porter, who pioneered the PBSA model in the UK through Unite Group, an entity now listed on the London Stock Exchange.

Following on from this, KSK Homes opened the first phase of its student community last year, with 700 new rooms completed. Phase two containing a further 1,200 units is scheduled to complete this year.

The Myriad Dubai, a scheme being built by Strategic Housing Group and backed by DIFC-based FIM Partners, is also set to open a 1,711 room development (catering to 2,250 students) before the start of the next academic year in September.

Its chief executive, Vikram Rao, explains the model has taken time to develop in the UAE. The Myriad sits on one of the first plots specifically zoned for student housing. Myriad has worked with regulators such as the Roads and Transport Authority on appropriate traffic management standards.

“We ticked every single box until we built the building. We took so many factors into consideration,” Rao says. “We wanted this to be a category one – the best property of its type globally."

Having these standards in place is vital to attracting investors, says Shehzad Jamal, a partner in Knight Frank’s healthcare and education practice in Dubai.

Having land that is specifically zoned for student accommodation, as opposed to mixed-use or residential, not only reduces risk, it allows for specific adjustments that can help with returns – for instance, they need fewer parking spaces, meaning basement or mezzanine can be used for other functions.

"There’s more confidence in what you’ve invested in”, he says.

According to CBRE, 34 per cent of those pursuing higher education in Dubai are UAE nationals while the remaining 66 per cent are non-nationals. About 53 per cent of students are from Asia, 30 per cent are from the Middle East and North Africa, 6 per cent from Europe and 5 per cent from Africa.

This breakdown doesn’t specify need. Many foreign nationals living in the UAE may be living with parents, while some UAE nationals may require rooms in emirates other than their own to enjoy the benefits of campus life, Mr Rao says. His firm, which has a joint venture with the biggest provider of student property in the US, Asset Living, undertook its own research in a bid to more accurately gauge requirements, he said.

“We went uni by uni … without mentioning names, a typical university with 3,000 or so students, 25 per cent of those are purely from outside the UAE,” he said.

Mr Rao, whose firm is also developing similar student blocks in Oman, Saudi Arabia and South Africa, says he recognised the need for PBSA while studying for his second postgraduate degree in Dubai, when younger students would tell him tales of being kicked out of cheap accommodation because landlords had illegally sublet or allowed for shared rooms.

PBSA not only offers culturally appropriate, secure properties, with separate blocks for male and female students, there are facilities such as coffee shops, group study areas, sports facilities, gyms and other areas where students can mingle.

A cinema area within GSA Group's Uninest building in Dubai. ENBD Reit completed a seven-year sale and leaseback deal for the property, which is providing a net rental yield of about 8% a year. Courtesy GSA Group

That sense of belonging is important, Mr Jamal believes, particularly to soothe concerns of parents who worry about their children becoming isolated when living in a foreign city.

“It’s what your parents are sending you for, really – so you grow up, grow out of your skin and you become an adult," he says.

"Being able to mix with different cultures and being able to see the world in a different perspective is why one goes abroad to study, mostly,” he says.

Developing more of this type of accommodation is important if Dubai, particularly, is to fulfil its ambition to become a regional education hub, says Ms De La Torre.

“There needs to be an understanding of the specific needs of these students that will be coming to these universities," she says. "Increasingly, students are looking for that full university experience and so having that dedicated student accommodation ... is one of the key criteria that they look for when they are identifying where to pursue their studies”.

Of course, this comes at a price. A shared room at The Myriad costs about Dh2,700 per month, or Dh27,000 per year, as students typically pay for a 10-month period. A single room costs Dh4,000 per month, or Dh40,000 per year.

Mr Rao acknowledges this is more expensive than some surrounding residential units, but says the PBSA units have much higher overheads as they provide more services – such as 24-hour security and technical support.

It also needs to generate a return for investors. Globally, in more mature markets like the UK, student properties have achieved yields of about 5-6 per cent, says Ms De La Torre, which is similar to multi-family residential developments.

“Just based on what we’re seeing in the market and the projects we’ve been involved in, we would say returns are 8-9 per cent in the UAE. It’s characteristic of where the market is at the moment – it’s very much emerging,” she adds.

ENBD Reit, the publicly-listed real estate investment trust managed by Emirates NBD Asset Management, agreed a 7-year sale and leaseback with GSA Group for Uninest.

“The asset has performed well,” says the Reit's head of real estate, Anthony Taylor. “As we approach the third year of the lease term, we have achieved a net rental yield of 8 per cent per annum on our investment."

He says student accommodation is useful as it “provides diversification within our portfolio”, which is largely geared towards commercial office (64 per cent of the total) and residential space (17 per cent).

However, he says finding the right operator and/or investment partner is important, given the specialist nature of the properties.

“Should we be presented with similar opportunities with the same or other best-in-class operators in attractive locations, we would consider further investment in student accommodation,” he said.