Canada lags well behind the United States and several European nations when it comes to purpose-built student accommodations (PBSA).

This is despite attracting a large and growing number of international students in addition to those who live permanently in the country.

The supply gap is substantial and those PBSAs that have been built are close to 100 per cent full, so there’s obviously a need to create more. While there are challenges, investors are gradually becoming more interested in the sector, according to a recent BONARD report titled Why Canada’s PBSA sector is a great opportunity for investors.

The report from the provider of independent data, research and advisory for the global rented residential sector said while international investors are eyeing the Canadian market, some factors — such as a lack of research, large portfolios and experienced operators — are making them hesitant.

“They need to have access to information to understand the local specifics,” BONARD's real estate business development director Martin Varga told RENX. “We're solving this problem in Canada with an interactive platform. 

“We have more than 22 cities mapped on a regular basis and we have information about all the players, rents and pipeline directions.

"We want to help develop the market, but it's going to take some time because you need transactable stock and experienced operators that will be driving this stock.”

Housing needed for international students

The report raises concerns that an overall affordable housing shortage combined with a lack of PBSA options are causing problems for students and threatening to damage Canada’s popularity abroad — which would especially hurt universities since they charge much higher tuitions to international students.

“The students are usually the customers, but the clients are the parents and the parents want to send their children to a place that’s providing a good quality of education — which Canada does — but also a secure and good place for living,” said Varga.

“And unless this is settled and solved within Canada, it can discourage some of the students and parents from sending those students to the country.” 

Twenty-two Canadian cities surveyed in the report by Vienna-based BONARD hosted 1.29 million students in 2021-'22, of whom 259,217 were international. Only 155,692 PBSA beds were available to the students.

That covers just 12 per cent of students, compared to PBSA beds for more than 30 per cent of the students in the United States and United Kingdom and 17 per cent in continental Europe, according to Varga.

Of the 155,692 beds, only 28 per cent were offered off-campus by private PBSA establishments. That proportion is usually higher in more mature markets — in the U.K., it's 53 per cent.

Ontario houses half of international students

Varga said half of Canada’s international students are studying in Ontario, with the other half spread across the country.

The cities of Waterloo, accommodating 43 per cent, and London, at 30 per cent, have the highest ratio of PBSA beds.

The institutions located in Toronto can house 11 per cent.

Waterloo, housing 57 per cent, and St. Catharines, at 41 per cent, have the highest ratio of off-campus private PBSA beds.

According to BONARD data, just 18,090 beds were in the pipeline for 2022 across selected Canadian cities, of which 10,141 were under construction and 7,949 were being planned.

About 47 per cent of the PBSA stock in the pipeline was private, compared to 78 per cent in the U.K.

Toronto had by far the largest number of beds in the pipeline, at 4,266 (2,160 under construction and 2,106 planned), while Hamilton was second at 2,130 (2,010 under construction and 120 planned).

Winnipeg, Saskatoon and Brantford had no beds in the pipeline.

“The pipeline that is out there now is not sufficient enough to accommodate the growth of students,” said Varga.

“With such a pace, the gap will just be widening and not closing.”

Most students want privacy

Varga said most students prefer single-occupancy accommodations for more privacy, while also seeking a sense of community, but many may not be able to afford that and need to opt for sharing space.

Investors and developers need to know as much as possible about potential tenants in order to offer a desirable and diverse product offering.

“The most important thing now for Canada is not only to build, but to build it right,” said Varga.

“What we’ve seen in other emerging markets was people just building and building beds, but they're not really building quality accommodation and quality beds.” 

High rents and occupancy rates in PBSA assets paint a promising picture for potential investors.

Among the biggest current players in Canada are Alignvest Student Housing REIT, Canadian Student Living, Campus Suites, Woodbourne, Knightstone Capital Management and Forum Asset Management as well as more localized investors.

Foreign companies are showing a growing interest in Canada, according to the report.

“They're willing to expand, but many places — like the U.K., continental Europe and the U.S. — are becoming really competitive,” said Varga.

“So people are looking for some alternative options and we believe Canada is already one of the top markets to look at and to invest in.”

While more capital is needed, Varga said that will only come with more transactable opportunities and larger pipelines.

Universities and developers have different goals

Universities are seeking a solution to the accommodation shortage, but one of their biggest challenges is accessing financing to fund the development of PBSAs on or around Canadian campuses.

Public sector universities and colleges receive funding from provincial governments, which generally don’t allow them to borrow from third-party lenders.

Most post-secondary educational institutions don’t have the liquidity to invest in student housing and most governments aren’t willing or able to invest in it.

More universities have started investigating public-private partnerships as potentially mutual beneficial solutions, according to the report.

However, with universities looking for the lowest cost housing for students and developers seeking an acceptable investment return, these goals may be difficult to overcome.

Varga believes more government involvement and cooperation could help both parties achieve what they want, but governments are focused on trying to create more multifamily housing for all of society and not just for students.