As the name suggests, Global Student Accommodation (GSA) is committed to expanding purpose-built student accommodation (PBSA) as an asset class in key markets across the world, invariably in tandem with like-minded institutional investors. The global growth strategy now sees us turn our attention to Japan, writes GSA Coral’s Ben Harvie.
In early March, GSA announced a formal partnership with Star Asia Group, a leading Japanese private equity firm, to create as many as 20,000 beds for university students in Japan. The joint venture GSA Star Asia has already made its first acquisition – a site that will become a 364-bed student residence in Tokyo’s Bunkyo district (pictured here).
This first transaction involves GSA Coral taking a 25% equity interest in the project, investing alongside not just Star Asia but one of the world’s largest investment management firms and a US-based global pension fund.
This is a pioneering move for a Western group into Japan – arguably an exciting and untapped PBSA market – and follows nearly three years of research and preparations by GSA in Tokyo, building a team, developing local partnerships and gaining a thorough understanding of the higher education (HE) system.
The backstory to student housing in Japan would be familiar to anyone who has witnessed the rise of PBSA in other countries: students poorly served by the private rental market or ageing university halls. But like every “new” PBSA market, the investment case must be underpinned by rising student numbers in a vibrant HE sector.
And the macro figures are hugely supportive, every bit as compelling as any other market we have entered in recent years. For a start, the Tokyo metropolitan area is already one of the world’s largest student cities, with over one million enrolments in higher education while Japan is the eighth biggest international student destination and the second largest destination for international students in Asia.
At a time of growing international student mobility – essentially a global trend driven by quality of education, housing options and employment opportunities – the case for investment looks stronger still. According to OECD research, the main sources of international students are China, India and South Korea. The most favoured destinations are the US, UK, China, Australia – and Japan.
According to the official QS rankings, Japan has 14 out of the top 400 global universities while in terms of such measures as desirability and employer activity, Tokyo outperforms New York, London and Sydney. All of which is acknowledged by the Japanese government, whose recent HE reforms are aimed at attracting greater numbers of international students – a very explicit acceptance of the virtues of globalisation.
Yet the amount of PBSA stock is negligible, with Japan’s universities relying instead on the private rental sector, which is ill-suited to students from overseas. The PBSA supply/demand imbalance extends to as many as 300,000 beds in Tokyo alone, which will only grow as Japan welcomes more international students.
Against that background, we anticipate that the first investment will be accretive to portfolio returns while at the same time introducing not just the Uninest Student Residences brand to Japan but a bespoke design of accommodation involving high-quality rooms and facilities and a sense of community currently not yet available in the market. When complete next year, customers will pay a simple, all-inclusive rent and there will be an emphasis on international customer service (including bilingual concierge). Right now, there are nearly 100,000 students – 4,700 international – within the catchment area of the development.
Of course, Japan still represents a PBSA market in its infancy, and in that respect the participation of Star Asia is critically important in providing underwriting experience and risk management. But the partnering up with major investors – as well as debt finance from a Japanese bank – is equally important in reinforcing PBSA’s acceptance as institutional-grade real estate.
It is worth pointing out, too, that the announcement of GSA’s Tokyo investment coincided with the presence of Japan’s Tokyo Tatemono, at MIPIM, the annual property expo held in France in March this year. Here was one of Japan’s leading real estate developers taking the trouble to explain to prospective European investors how ongoing reforms to the Japanese higher education system are “presenting unprecedented opportunities for private sector investment in student housing”.
It is important that global operators and institutions seize those opportunities so that PBSA becomes a mainstream asset class in Japan, just as it has done in other markets. For the time being, GSA is happy to make the most of its first-mover advantage, on behalf of its own investors.