Friday, 17 December 2021

Despite some return of international students from December 2021, times remain tough at Australia’s universities.

The pandemic has severely impacted the bottom line of the tertiary sector, with a massive ongoing revenue shortfall from absent international students, as discussed in our Higher Education Insight 2 from September 2021. The ongoing shortfall means universities still have to radically rethink their economic futures.
Australian universities have historically explored real estate opportunities on a limited or ‘tactical’ basis, but the immediate revenue crisis has prompted many to consider their large real estate holdings as a lifeline. Real estate decision-making has elevated from the facilities department to Vice Chancellors, Chancellors and their committees.
Universities around the country have been building large real estate portfolios for years with the help of booming international student revenues. However, management of these portfolios has traditionally been reactive. Now they offer immediate opportunities for a more sustainable financial future.
With many universities sitting on large land holdings or under-utilised buildings, the most straightforward option is the disposal of non-core assets. Sydney University and UTS 3 have recently taken advantage of Sydney’s burgeoning residential property prices by bringing $120m of accommodation assets to market. Another way of releasing unproductive capital is a sale and leaseback program, as we discussed last year in “Higher Education: Asset solutions for cash challenged universities.” 4 RMIT sold a 14-storey building in Melbourne’s CBD last year, in one such agreement.
Whilst either of these options can provide a short-term ‘sugar hit’ to flagging cash reserves, they are tactical responses that are, yet again, reactive. These options should only be considered as part of a real estate strategy designed to support a university’s vision. Universities are increasingly exploring opportunities to create landmark industry collaboration precincts in conjunction with leading real estate investment and operational partners.

Integrated and sustainable commercial ventures

Perth’s biggest university, Curtin, has recently embarked on ‘The Exchange’, 6 an integrated $300m development on its main campus, involving several external partners that will deliver 1,000 new student beds, apartments, a boutique hotel, speciality retail and commercial space for industry partners. With the first stage due to open in January 2022, the rubber is well and truly on the road.
In Geelong, the proximity of Deakin University’s Waurn Ponds campus is a major catalyst for a planned $600m innovation, education and healthcare partnership between a Canadian REIT (NorthWest) and Epworth Healthcare. 7 As Craig Mitchell, NorthWest’s chief executive for Australia and New Zealand, noted, COVID-19 has accelerated many things, especially in the field of healthcare. “The university in the modern day is here to provide excellent education – in safe and vibrant environments – that is linked to good work prospects, and to solve real-world industry problems as well as conduct pure research. We’re creating deep and lasting relationships with industry, an environment for our students that is integrally linked to work opportunities and a community that’s vibrant and interesting.”
Meanwhile, La Trobe University has identified an opportunity for a major development partner to help fast-track its City of the Future project in Melbourne’s north, that will deliver a sports park, student accommodation and two innovation hubs. The city will be based on a research and innovation precinct and health and well-being hub featuring an expanded private hospital.
Further afield, Oxford University has inked a joint venture 9 with insurer Legal and General to develop a mix of 3,000 graduate accommodation units, staff rental properties and regular homes for sale on the open market. The proceeds of the development will finance two science parks featuring academic, commercial and incubation space.

Industry informed master planning

Most university real estate strategies are led by a master planning process that does not always address capital and commercial imperatives. While important exercises in framing a campus’s future footprint, they are expensive and time consuming projects that often do not draw on deep market insights, especially in a post-COVID era. This approach is further complicated by changing academic structures, teaching portfolios, and expectations from government, student and community. Consequently, these plans often fail to deliver the required outcomes.
The Federal government wants universities to be more connected to industry and innovation and to play a more direct role guiding students along career pathways. Without deep engagement and a carefully designed market process, universities are at risk of committing significant resources to a masterplan that may not accommodate the commercial needs of potential partners.
Completing an initial assessment of commercialisation opportunities is a far more effective approach. Doing so can identify unrealised or latent commercial value, new paths and timing to realisation, and solutions to likely transaction impediments.

The new normal for real estate portfolios

With the return to campus, the competition for domestic and international students is likely to be intense. Importantly, as the pandemic forces institutions to re-evaluate the role that the traditional campus plays in student life, any future-focused real estate strategy must place students at its heart. As the world economy recovers, collaborative development with industry leaders will be an important advantage in developing education pathways to the jobs of the future.
Whilst most universities understand the value their real estate portfolios have in turning around current sector challenges, delivering a strategic ‘whole of organisation’ approach is challenging. Universities need to take a broader perspective and ensure they engage the market in a thorough commercial assessment, in order to position and deliver a meaningful and viable campus masterplan.
Flinders University Vice Chancellor Colin Stirling scoffs at the idea 10 that universities should not stoop to commercial activities. “One hears all the time that nobody wants universities to be run like businesses," he says. “The day we fail to meet our payroll will be the day those people wish we’d been run like a business.”


[1] Universities Australia, Universities Australia Welcome The Safe Return Of International Students To NSW (24 September 2021) <>.

[2] Henriette Rothschild and Sophie Gibbons, KordaMentha, Higher education: darker clouds on the horizon (28 September 2021) <>.

[3] Martin Kelly, Australian Financial Review, Sydney Uni joins education property pivot with real estate sell-off (10 October 2021) <>.

[4] Henriette Rothschild, Suzanne Wauchope and Tom Davis, KordaMentha, Higher Education: Asset solutions for cash challenged universities (13 August 2020) <>.

[5] Kelly, Australian Financial Review, above n 3.

[6] Curtin University, Exchange (2021) <>.

[7] Nick Lenaghan, Australian Financial Review, NorthWest plots $600m Geelong healthcare precinct (6 October 2021) <>.

[8] John Ross, The World University Rankings, Living off the land: the universities reaping the rewards of their locations (24 October 2019) <>.

[9] John Morgan, The World University Rankings, Oxford partners with Legal & General on £4 billion development plan (27 June 2019) <>.

[10] Ross, The World University Rankings, above n 8.