Student Hostels a New Cash Cow for Wealthy Investors

Purpose-built student accommodation (PBSA) is proving a reliable cash-cow venture for wealthy investors who are pumping billions of shillings into the asset class.

PBSA, which is housing built by private developers for students, is offering investors high rental yields thanks to the rising university enrolments in Kenya.

According to realtor Knight Frank, PBSA is currently offering a rental yield of 8% – double the returns for prime residential properties in the country.

“In Kenya, PBSA is proving to have a higher yield (circa 8%) than prime residential properties (circa 4%),” Knight Frank says in its half-year 2022 market report.

The attractive rental yields, amid a widening student housing shortage (of about 200,000 units), have attracted the attention of wealthy investors who are increasingly betting large amounts of money on the construction of high-quality hostels.

These investors include Acorn Holdings and Student Factory Africa Limited.

RELATED: Nairobi Tycoons Splash Out Billions on Student Hostels

Acorn Holdings, which currently dominates the market, has built thousands of units near major private and public universities under its Qwetu and Qejani brands.

The company claims to have more than 90% occupancy rates in most of its seven Qwetu branded hostels – whose rents go as high as Sh35,000 a month.

Acorn had built 1,572 rooms with 2,313 beds as of December 31, 2020.

The company is building four hostels that are expected to open by the end of 2023. These are Qwetu Chiromo, Qwetu Catholic University, Chiromo Qejani, and Catholic University Qejani.

An additional four hostels are set to open by the end of Q1, 2024, among them Hurlingham Qejani, KU’s Qwetu, and Qejani – in Northlands City, and JKUAT Qejani in Juja.

Student Factory Africa Ltd has teamed up with the Kenya Conference of Catholic Bishops and Betonbouw B – a Dutch private equity firm – to set up a PBSA facility in the city.

The Sh5 billion venture, which came up in April 2021, is located in Karen, next to the Catholic University of Africa – whose students are the main target of the project.

Phase one of the 4,500-bed hostel project was expected to open this year, making Student Factory the country’s third branded student housing venture after Qwetu and Qejani.

Unlike old-style hostels that only offer basic shelter, PBSA provides leisure facilities and ‘cool’ bonuses such as gyms, games rooms, and common study rooms.

These amenities, as well as the high levels of security offered by PBSA, allow property developers to charge high rents – which drives up the rental yields. 

However, Knight Frank expects that the current yields will eventually fall to a level near, if not similar, to traditional real estate yields as investors strive to meet the demand.

Join 15,000+ pros getting our weekly digest of news and insights.