Dexus makes $500m student accommodation foray with plan to convert city offices

Dexus is forging deeper into the student accommodation market with one of its unlisted partnerships to take on the development of a 1200 bed facility in the heart of Brisbane.

Property heavyweight Dexus is forging deeper into the student accommodation market with one of its unlisted partnerships to take on the development of a 1200 bed facility in the heart of Brisbane.

The move comes against the backdrop of uncertainty in the tertiary education sector, prompted by the announcement of caps on international student numbers that were unveiled by the federal government in response to the housing crisis.

Dexus has teamed with local funds manager Marquette Properties, with the pair buying 41 George Street in the central business district for about $123m in order to redevelop the site as a $500m student accommodation facility.

In a sign of the still tough times in the office market, they picked up the building from Basil Property Trust, that is owned by Saudi investment firm Al Rajhi Group and run by Singapore-based AEP Investment Management, below the $159m it bought the building for in 2016.

The sale, brokered by JLL’s Paul Noonan and Seb Turnbull and CBRE’s Bruce Baker, helps to diversify the Dexus business, with its funds empire already holding student assets. It is also a boost for the sector, which is still under-supplied, as student numbers are expected to grow faster than purpose-built student accommodation facilities.

Dexus is expanding into the student accommodation market in Brisbane.

The play also shows Dexus’s belief in demand from students, despite the federal government’s plans to clamp down on international students. Capital cities still face a deep shortage of purpose-built student accommodation, particularly cities like Brisbane, which has a number of tertiary education institutions and rising property prices.

Marquette has had a position on the office block since early this year and will stay in the deal with a holding of around 5 per cent, while the Dexus Real Estate Partnership takes a 95 per cent interest.

The pair will be joint development managers and repurpose the existing B-Grade office building, which was vacated by the Queensland government this year, into a modern student facility.

The high-profile site is suited for conversion to student accommodation and its existing structure, lift core and facade will be reused as the inside of the tower is reworked, and it will include three floors for residents including a gym, yoga, gaming and cinema rooms.

The 27-storey tower will be the closest student housing to Queensland’s second-largest university campus, Queensland University of Technology, and two blocks from the recently announced Griffith University CBD campus, set to open in 2027.

While the trust is mainly known as an office landlord, Dexus chief Ross Du Vernet said the move showed off the company’s wider capacity. “This includes special situations investing, office development and refurbishment, and the infrastructure team’s deep understanding of the Australian student accommodation sector,” he said.

Brisbane reflects the broader student accommodation sector across Australia, where the student accommodation pipeline of 7,770 new beds due to come online by 2026 will fall below demand. Building on the George Street site is expected to kick off in 2024 and the complex will be finished in 2026.

DREP fund manager Jason Howes said the first in the fund series was now fully deployed after striking 15 investments. The second is now open and is expected to be “substantially larger” than the first series.

Mr Lewis said that the uncertainty around student caps on enrolment “has created greater uncertainty and put projects at risk” but he remains optimistic about the sector due to the economic importance of tertiary education and the ongoing shortage of accommodation.

While converting unwanted offices into accommodation has been spruiked as a solution for empty offices across Australia, Mr Lewis cautioned that “not every building can be converted”.

He said that such projects were an “exciting, sustainable way to reuse ageing buildings” but it was “hard to find ones that are fully vacant”.