Managing student accommodation is no part-time job
By Craig McMurray, CEO of Respublica
There is certainly much opportunity in the student housing sector, with shortages on all campuses priming the sector for new development or the adaptation of existing buildings. However, even though there’s great opportunity, there are also challenges, with the sector requiring much more hands-on management than traditional commercial property portfolios.
Effectively, running student accommodation is like running a hotel – on steroids – and it requires a different set of skills, experience and resources to those required by all other commercial, retail, residential and industrial property managers.
For example, operating costs in other sectors ranges between 15% – 25%, whereas this figure sits at around 40% in well managed fully inclusive student accommodation facilities. While a conventional property’s expenses are generally limited to marketing and maintenance with utilities being recoverable from tenants, student accommodation requires the landlord to assume most utility consumable costs and carry a larger staff complement to help manage the softer student community aspects.
This includes the likes of residence life programmes that help students integrate into campus life, counselling services, sports and recreation, and managing student leadership committees – all aspects that are expected in a university residence, and which are supplied by universities for their own facilities. This kind of involvement requires far more than a building manager or caretaker – it requires a network of experienced professionals. Like a hotel brand, student accommodation requires significant head office infrastructure and capacity to provide the necessary administrative, marketing, procurement and financial support to operate a national hospitality and development operation.
These softer services and facilities are vital for the students, and they add costs to your balance sheet and income statement, but they make good business sense as well. If you’re running a good facility where there’s a strong sense of community, students are more likely to enjoy their living and learning experience, renew their leases, and invite their friends to join in the lifestyle.
There is also significant risk in managing your mix of tenants, with most students only on campus for 10 months of the year for example. Student accommodation managers also need to consider that they will hold a lease for every student – that’s as many as 1,000 leases that need to be negotiated, with rental collections taking place each month. Managing these leases and rental collections is a significant part of our day-to-day functioning, regardless if they sit with the student or the university.
There’s also the issue of balancing high building costs with keeping rental affordable, as the student tenant typically struggles with financial constraints. It’s Respublica’s business model to offer our students the best, most nurturing ecosystem possible – but to do that while keeping costs to them and their parents or sponsors tightly under control.
At Respublica, we’ve made it our business to understand this sector properly, with our established residences offering strong returns. We currently have over 3,000 beds in operation with the completion of Eastwood Village in Pretoria adding an addition 538 beds in 2016. We have other residences coming online in Cape Town, Bloemfontein, Johannesburg and Pretoria. Our latest involvement is the redevelopment of Hatfield Square in Pretoria as a mixed use precinct, where we are designing modern residence buildings with more than 2,000 beds that respond to a broad spectrum of students’ needs, both from a product and affordability perspective. It’s not every building that can be converted into appropriate accommodation, and nowadays we prefer to build from new – although we have the experience and insight to identify whether an existing building has potential.
Student accommodation is a demanding, challenging and intensive sector to be involved – but if managed properly it offers good returns, not least of which is the knowledge that we are playing a vital role in the education of South Africa’s youth as we help build leaders who will positively shape our country.