Investors focus on healthcare facilities, student housing as hunt for yield intensifies

Non-conventional real estate assets such as student or young professional housing, healthcare and industrial facilities are, increasingly, attracting attention as investors intensify hunt for yield in African markets.

Experts attribute the new trend to declining returns on investment in conventional real estate assets which include commercial office space, formal retail and, to less extent, residential properties, all of which were heavily impacted by Covid-19 pandemic.

The pandemic is the reason for the increased need for healthcare facilities and also the growth of e-commerce and logistics which are the major demand drivers for industrial facilities like warehousing, according to Oladipo Idowu-Agida, CEO, Dradrock Real Estate.

In Nigeria, an analysis of the market shows that the gap between student housing needs and supply has widened, thereby opening investment opportunities for prospective investors.

According to analysts, this gap is evident in the increased number of students enrolling into tertiary institutions in the country as figures from the Joint Admissions and Matriculation Board (JAMB) show.

Abayomi Onasanya, Founder/CEO, Student Accommod8, explained to this reporter that student housing as an investment asset can generate about 22 percent returns which is more than double what commercial real estate gives and more than the 4-5 percent returns per annum on residential property.

In other parts of Africa, savvy investors are taking position in the non-conventional properties and, according to findings by Estate Intel, a real estate research firm, there is a partnership by Eris and IFC on investments towards student accommodation.

The market has also seen a student accommodation REIT launched by Growthpoint in South Africa. This is, however, coming behind Africa’s first student accommodation REIT that was launched by Acorn Holdings, through its subsidiary, Acorn Investment Management Limited (AIML) in Nairobi in 2021.

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“Acorn Holdings provides purpose built student accommodation in East Africa and are currently targeting over 50,000 students in Kenya,” Tilda Mwai, research and insights manager at Estate Intel, explained.

Mwai listed four things that distinguished the Accorn REIT which also show where investor-focus and interest lie. One of those things was that the REIT was 100 percent subscribed at launch, raising $22million. InfraCo Africa, part of the Private Infrastructure Development Group (PIDG), featured as an anchor investor with a commitment of over $10 million.

Mwai recalled that, in 2019, with support from GuarantCo, Acorn raised the first Green Housing Bond in Africa which was subsequently dual listed on the Nairobi Stock Exchange and London Stock Exchange.

She added that, in 2021, the company received approval from the Capital Markets Authority to raise the ceiling of its bond programme to KShs 5.7 billion, up from the previous Kshs 5 billion.

“Acorn currently operates five properties located within Nairobi under the Qwetu brand with a capacity of 3000 beds. In addition, their development pipeline currently consists of an additional 5,000 beds across six development projects in Nairobi with completion expected over the next three years,” she said.

Another interesting thing about this student REIT, according to Mwai, is that Acorn’s market offering cuts across middle income target, ranging between $138 to $295 per bed per month, to the ongoing affordable mass-market offering ranging from $74 to $111 per bed, per month.

Like Nigeria, a widening supply gap continues to exist, but that is outside South Africa. The reason is that tertiary institutions across the continent, on average, can only accommodate between 10 and 25 percent of their students through campus hostels provided by schools.

“As such, our outlook for the sector remains positive underpinned by this increasing supply deficit and strong income profile. Indeed, some of the few developers including Student Accommod8, who have debuted into the market, have seen incredible occupancy rates (typically achieving 90 percent— occupancy within six months of completion), and considerably high annual rental yields ranging between 9 percent for basic hostel types and 25 percent for the premium products,” Mwai said.