Saturday, November 27

Why isn’t there enough private investment in Lagos’ student housing market?

Since the establishment of the University of Ibadan in 1948 as the first University in Nigeria, the strategy for the provision of student accommodation in Nigeria has been largely driven by the institutions themselves. Today, Lagos has over 20 tertiary institutions, 8 of them, which account for a student population of over 90,000, are concentrated in Yaba alone, where there is  an 80%+  hostel supply gap. According to the Vice Chancellor, in 2017, the University of Lagos (UNILAG), had a student population of 58,000 and 8,000 student beds; Yaba College of Technology (YABATECH) had over 20,000 students at the time according to the school website and 6 halls of residence meeting less than 10% of demand. Despite the clear gap in the market, we are curious as to why the student housing market in Lagos has not seen larger amounts of private investment. We will kick start this conversation by discussing the market from a global and African perspective, drilling down to the facts in Lagos and Yaba in particular alongside advice on what we think will improve the chances of success for developers.

Tertiary Institutions in Yaba, Estate Intel

What is the student housing story like globally?

The steady growth in student population globally and increasing undersupply of student housing has positioned the student housing market as a stable asset class for discerning investors, drawing a large chunk of private sector funds in Europe, and the United States among many other continents. Unlike other property segments, student housing typically demonstrates a strong and stable performance, even through economic turbulences such as recessions and pandemics, due to its far less cyclical nature. This is especially true for cities with a high concentration of higher institutions and larger student populations.

A report by Catella in 2021, revealed that despite the changes and adaptations in student life due to the COVID-19 pandemic – online courses, travel restrictions, postponement of semester dates and deadlines, etc., the European student housing market has proved itself largely resilient in the crisis with the demand for student accommodation dropping very slightly in 2020 and investors’ willingness to invest remaining stable compared to the previous year. David Inskip, a Senior Director and Head of UK Real Assets Research at CBRE Global Investors during a conversation with one of our analysts noted that the student housing market in Europe, especially in the UK is largely private sector driven, with over 70% of hostels being built by private developers, and international students constituting the bulk of demand drivers. This strong pool of international students has over the years encouraged private developers to invest in the student housing market.

How is it going in Africa?

Unlike Europe and the United States, Africa is still behind in terms of private interest in the student housing market. Institutions across the continent are still poised with the daunting task of accommodating their students by themselves. Outside the problem of inadequate funding which has made it impossible for institutions to develop sufficient hostels to meet demand, poor management and excess demand pressures have also severely stretched existing hostels leaving them largely inhabitable. Although on the surface, this presents a huge opportunity for private developers, investment interest in student accommodation across the continent still pales in comparison to the opportunities.

In a research by Commercial Property Kenya, tertiary institutions across the continent on an average can only accommodate between 10 and 25% of their students through campus hostels provided by schools. Countries such as Rwanda, Niger, Sudan, and Mali fall closer to the 10% mark where countries such as Kenya, Ghana and South Africa are closer to the 25% due to higher government spend on education. These countries have also been able to enjoy considerable private sector investment in student housing compared to those closer to the 10% mark. In Kenya for example, Student Factory Africa just signed an MOU to build a Sh5 billion student residence in Karen Nairobi, while developers such as Acorn Group Holdings have over the past few years are providing high quality branded hostel apartments in large scale through its Qwetu and Qejani hostels.

What is the narrative in Lagos?

Lagos has the highest student population in Nigeria. According to the State Ministry of Education, there are over 20 tertiary institutions (comprising universities, polytechnics, and colleges of education, as well as training institutes) in Lagos. Currently, the demand gap is sparsely satisfied through a few Purpose Built Student Accommodation facilities and low quality residential conversions, while most students are left with no option than to attend lectures from their homes or squat with friends. Though students are particularly price sensitive, most of these residential conversions fail to offer standard facilities and amenities that some are willing to pay a premium for. A few examples include well organised shared and single room options with common areas, study rooms, welfare facilities including a laundromat and more. Some of the few developers including Student Accommod8, who have dared the market have seen incredible occupancy rates (typically achieving 90% occupancy within six months of completion), and considerably high annual rental yields ranging between 9% for basic hostel types and 25% for the premium products. It is surprising that despite the opportunities in the student market housing market, especially in Yaba, investment interest by private developers is still pale.

Hostel Case Study, Student Accomod8

Why has Purpose Built Student Accommodation (PBSA) not seen enough private funds?

It is difficult structuring financing with schools

One of the challenges that have deterred developers from investing in PBSA according to Abayomi Onasanya, the Founder and CEO of Student Accommod8 is structuring financing. Our interaction with him revealed that educational institutions who lease land to developers create terms of agreements that are onerous and difficult to finance. For success to happen in the student housing market, agreements that take the requirements of the funding partner into consideration are crucial. We also believe that solving the land acquisition and funding related challenges, would require developers to pursue joint ventures with neighbouring landowners and also modularly and flexibly build their products in order to successfully adjust to demand changes such as what happened in 2020 when schools shut down due to COVID.

Developers are skeptical about the paying potential of the market

Although there are a handful of developers showing interest in the sector, many others still have the more traditional sectors in the front burner. Outside the difficulty with funding, some developers still question the paying potential of the student housing market. We understand that students are price sensitive, but our data shows that good products still sell and students are willing to pay a premium for amenities. The data that we track shows that rents for student housing in Yaba have grown considerably over the past few years. Some of the completed projects that provide a premium feel (Installed AC, 24 hours power and excellent cleaning service) such as Wakanda Apartments are able to achieve annual rental of around 800,000 for a single room studio and ₦400,000 for studios with 2 bed spaces, which is double what is typically achieved in surrounding low quality hostels. This clearly shows that the opportunity in the Yaba market is enormous.

Where there is a high concentration of Schools, there is difficulty in finding suitable parcels

A major challenge identified by one of the prospective developers that we have a relationship with, is the fact that where there is high concentration of schools, there is difficulty in acquiring or finding suitable land portions, especially for large scale PBSA projects. This is true for Yaba that is very well built up with the highest concentration of schools. A sharply contrasting narrative plays out in other parts of Lagos such as Ibeju-Lekki where First World Communities, UPDC and Student Accommod8 among other developers have been able to secure land and build successful hostel projects within and outside the Pan Atlantic University campus.

Hostel Case Study, Wakanda Apartments

Let us know your thoughts on the reasons why student housing has not seen larger amounts of private investment in Lagos?

Join the discussion on LinkedIn, and also send us an email via [email protected]for more information on the student housing market in Lagos.

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