The private sector’s push into Africa’s student housing market (www.howwemadeitinafrica.com)

The private sector’s push into Africa’s student housing market

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Private developers such as Acorn have partnered to develop housing units like the Qwetu Student Residences in Nairobi, Kenya

By David Ndungu (associate principal) and Bobby Patel (global head of real estate investment), CrossBoundary

Student accommodation has grown globally over the last two decades. This expansion has been fueled by increased student enrollment worldwide, among many other factors influenced by demographic trends.

This is true in Africa as with the rest of the world.

Based on UNESCO’s 2021 data report on the tertiary gross enrollment ratio (GER) in sub-Saharan Africa, the uptake in higher education in Africa has doubled over the last two decades, from 5% in 2000 (approximately 4.5 million students) to 9.4% as of 2020 (approximately 9 million students).

However, this is still below the global average GER of 38%, as indicated in the chart below.

Despite the rapid expansion, tertiary education systems in Africa are not equipped to absorb the growing demand that has resulted from broader access to secondary education.

For instance, in 2018, sub-Saharan Africa’s GER for secondary education was 4x higher than the level for tertiary education. This represents a stark drop-off in college enrolments. To put it in perspective, the global GER for secondary education is only 1.7x higher than that of the tertiary level.

The large gaps between the two ratios indicate that many students completing upper secondary education are eligible for higher education but not enrolling.

Policymakers and higher education institution heads alike are looking for ways to boost enrolment ratios despite resource constraints.

Institutional operators and their activity

Over the last few years, higher education institutions have switched their business models to lean ones to reduce their setup and operating costs. One of the strategies adopted is outsourcing various aspects of their operations, such as student housing, to third-party developers and operators.

This has prompted investors to develop privately-owned student accommodation to bridge the gap between the increasing demand for student accommodation and what can be provided by higher education institutions.

The investment landscape of student housing in Africa allows for direct and indirect investment into the assets. Indirect investments are through vehicles, such as pension funds and real estate investment trusts (REITs).

Direct investments can take various forms, such as direct ownership (Yardy Property Group), public private partnerships (PPP), and joint ventures (International Housing Solutions, SA).

Higher education institutions in Africa prefer the PPP model because they often lack the financial resources to fund new construction or renovate existing student housing. Through PPPs, these institutions can receive funding and expertise from the private sector, allowing them to focus on their core activity: providing education.

However, PPPs and direct ownership limit the schools’ control over development. Nonetheless, with the growing demand for student beds and the limitations of co-ownership with institutions, private developers have emerged, providing a high-quality living option for students without relying on higher education institution accommodation requirements. Students can live comfortably while the developer wholly owns the property, a win-win for all parties involved.

South Africa

One of the most prominent student housing developers in South Africa is República Group, which owns and operates student living and management services assets. República offers various accommodation platforms as a private accommodation developer, from bedrooms with common areas and shared kitchens to ensuite studios. They operate 8,900 beds across the country and primarily serve students from the University of Johannesburg, WITS University, and the University of Pretoria.

República Group’s expansion has been mainly through new developments and acquisitions, with the International Finance Corporation (IFC) investing US$20 million to facilitate this growth.

Another South African student housing developer is Eris Property Group, a real estate developer and fund manager operating purpose-built student accommodation.

University of the Witwatersrand, Johannesburg

Kenya

In the East African market, higher education institutions are experiencing an acute shortage of student housing. In Kenya, for example, a 2018 report by the Ministry of Education highlighted that the available student housing in local institutions stood at 300,000 against an overall enrollment of 520,900, excluding technical institutions.

A 2020 report by Cytonn further confirmed the gap by estimating available accommodation within higher education institutions and homes at 32.6% of the student population, leaving approximately 350,000 students seeking private accommodation. We estimate the accommodation gap across sub-Saharan Africa to be in excess of 600,000.

Given the huge supply-demand gap, private developers such as Acorn/Helios have partnered to develop housing units Qwetu/Qejani, which currently has a portfolio of 1,572 units in Ruaraka, Madaraka, Parklands, and Jogoo Road.

Another developer is Questworks, a private developer with around 200 units in the Madaraka area. It is essential to note that East African developers primarily opted for direct ownership (Acorn) and private public partnership (Questworks) since they could quickly raise development funds and deliver student housing.

Nigeria

The educational demographics of the West African markets are very similar to East Africa. In Nigeria, only 8.9% of the student population is accommodated on campus. Only a few schools can accommodate more than 50% of their population on campus, with some higher education institutions having bed deficits of up to 90%.

Private developers in Nigeria prefer Public-Private Partnerships using a built-operate-transfer system (Algami et al., 2007). One such developer is Student Accomod8 which provides purpose-built accommodation platforms serving students at the University of Lagos and Yabatech with a total bed capacity of 332 beds. Like other student housing developers in West Africa, most of their funding comes from bank loans and credit societies.

Egypt

The North African market adopts a different student accommodation strategy from the rest of the continent. Hotels fill the student accommodation deficits in the country while offering specialised accommodation, from small guest rooms to luxury suites with saunas and pools. The hotels do this without getting into partnerships with governments.

For instance, the University of Cairo student accommodation deficit is served by Hilton Cairo Zamalek residences. Other hotels include Golden Tulip and Om Kolthoom hotel, which provide student accommodation across the country. Most of the profits are from developments and acquisitions and tourist charges.

***

The higher education landscape will likely undergo significant change over the next years, but the Covid-19 pandemic has shown how quickly this industry can adapt. Although there is already a push to “return to the classroom,” a blended learning approach incorporating online classes will continue for the foreseeable future. Resource constraints remain a critical bottleneck to the adaptation and growth of these institutions.

The private market has become increasingly instrumental in the development and growth of the student housing sector. Building resilient strategies, being open to collaboration, and embracing a digital transformation will be necessary for these higher education institutions to increase the GER in the future and grow the sector in the post-pandemic environment.

This article was originally published by CrossBoundary Group.

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