Investors scramble for returns in non-conventional properties
At a time when high-yield investment assets are scarce, the non-conventional property sector is taking centre stage in the market, offering uncommon opportunities, while investors look for returns in more competitive environments.
Some savvy investors are, however, taking position in the sector which includes student or young professional housing, healthcare and industrial facilities.
Recently, Eris and International Finance Corporation (IFC) sealed a partnership deal for a new student accommodation platform.
IFC intends to make a R150 million ($10 million) equity investment in Eris’ South African Student Accommodation Impact Investments Proprietary Limited platform to help develop and operate accommodation for up to 15,000 students over the next five years.
In Nigeria, though investment in healthcare facilities is just gaining traction after the Covid-19 experience which exposed the gaps in that sector, investors are already making waves in student housing and industrial and logistics facilities.
Whereas investment interest in student housing is driven by increasing student population and decaying hostel accommodation facilities in the universities, e-commerce and online trading are the major drivers of investment interest in industrial property.
Investors are confident that despite COVID-19, which has led some schools to adopt a hybrid of online and in-person learning, demand for affordable student accommodation remains high.
Like Nigeria, where return in student housing is much higher than conventional property, initial returns for South African Student Accommodation projects that traded in 2019 ranged between 10-11.78 percent, according to research by JLL and the IFC.
These attractive double-digit figures are, clearly, more inviting than the typical single digits given by the conventional property sectors which, according to Olumide Osundolire, a real estate market analyst, range from 4 percent to 6 percent in Nigeria.
Abayomi Onasanya, CEO, Student Accommod8, a developer and operator of purpose-built student accommodation (PBSA), told BusinessDay in an interview that student housing in Nigeria offers exciting returns of up to 22 percent annually, depending on the specification and location of the project.
“We have already provided over 400 beds across three sites and plan to start construction on 2,500 beds across five sites. Our expectation is that in the next five years, we shall have provided 8,000 beds which, of course, is just a scratch of the surface,” he said.
Citing huge and growing student population for the rising demand for these assets, a recent report by Ubosi Eleh + Co estimates Nigeria’s growing college population seeking alternative accommodation outside poor campus hostels at 70 percent.
The report quotes UNESCO as saying that there are over 100 million young adults studying courses in polytechnics, universities, and colleges of education across Africa and, out of this number, 15 million are in Nigeria.
On-campus hostels can provide accommodation for only 30 percent of the university students whose annual enrolment rate stands at 12 percent. This means the opportunity in this sector is huge, more so when enrolment number is expected to grow annually.
Figures posted by the Joint Admissions and Matriculation Board (JAMB) show that 1.8 million candidates registered for the 2019 Unified Tertiary Matriculation Examination (UTME), and 1.9 million candidates were registered in 2020, which is the highest number in the 41-year history of the board, according to Omorinsola Ipaye, CEO, K.Parkwood Property Services.
Nigeria has the biggest university system in sub-Saharan Africa. Though the country has seen a surge in students’ enrolment over the years, that has not been matched by a corresponding growth in quality facilities for student accommodation.
“There is a huge supply gap which translates into opportunities for investors,” Onasanya said.
“Return on investment (ROI) is inviting. It gives about 22 percent which is more than double what commercial real estate gives, not to talk of residential real estate which gives just 4-5 percent return per annum,” he said.
In terms of rental yield, student housing offered about 15 percent in 2020, according to a K.Parkwood report which cited UAC Property Development Company (UPDC) that has the largest Real Estate Investments Trust (REIT) in West Africa with total assets under management (AUM) of N33.5 billion.
“It has diversified investment in residential, commercial, retail, and industrial real estate, but its student housing project (Pearl Hostel) at the Pan-Atlantic University Campus in Ibeju-Lekki was its highest yielding asset in 2019 with a 6.60 percent rental yield,” Ipaye noted.