As student numbers have increased, Kenyan universities have found it difficult to meet the demand for on-campus student accommodation. Some research indicates only around 23% of students can secure accommodation through their institution of study, which has given rise to the use of off-campus accommodation such as hostels where poor security, overcrowding and inadequate sanitation are common.

Acorn Holdings, a joint venture with UK-based private equity firm Helios, is a developer and operator of purpose-built student accommodation for university and college students in Nairobi under the Qwetu and Qejani brands. Kageni Muse spoke to Acorn’s chief investment officer and managing director, Raghav Gandhi, about investment opportunities in the sector.

Give us an overview of Acorn’s student accommodation portfolio.

Acorn has five properties located within Nairobi, largely situated close to university campuses. These offer 3,000 beds. Our investment philosophy going forward dictates that any acquisition for a site is within a 3km radius from a university campus. We have six current development projects that will add another 5,000 beds to the portfolio. We expect them to be delivered into the market during the next three years, some at the end of 2021 up to 2023.

What makes Nairobi a particularly attractive investment destination for purpose-built student accommodation?

Kenya is seen as a regional hub for education with the supply of excellent education institutions. And the government’s agenda is to grow that because they realise that education is critical to the continued development of the economy. The underlying demand factor for purpose-built student accommodation is demand for education. That is why Kenya and then Nairobi specifically is such a prime location for investment in student accommodation.

Despite Nairobi’s vibrant property development industry, there is still a big shortage of student housing. For what reasons have property developers not kept up with this high demand?

Provision of affordable student housing can happen only within a rental format. A limited number of developers focus on rental housing because that requires long-term patient capital. You have to hold onto that asset and maintain, manage and operate it for decades to maximise value.

For student accommodation, you cannot rely on a sale format because it doesn’t make economic sense for parents to buy an apartment for the three years their child is in university. Very few developers have the patient capital to wait and achieve their returns.

Acorn has launched two real estate investment trusts (REITs) – companies that own or finance income-producing real estate – to fund its developments. Tell us more about this.

Our pilot phase, in 2015, was funded by Helios which enabled us to develop student housing projects from which we could learn and see what works, not only in construction but also in operation and how we market the properties.

We had the launch of two REITS in February 2021. These are centred solely on student accommodation and will enable us to attract capital to acquire more land and develop more projects to fill some of the gaps in student accommodation. One anchor investor is a development finance institution, InfraCo Africa, which helped curate the investment offering. The REITs were 100% subscribed at launch but with this investment vehicle, you have to perpetually fundraise because you want to keep growing assets. The more assets you grow, the more efficient you can be in fund management. We raised KES 2.4 billion (USD 22 million) in the initial launch phase and we are hoping to raise more in the next few months.

Have you targeted all your student accommodation at the same income group?

We have two product offerings. The five operational properties fall under the Qwetu brand, a middle-income product offering where the range of beds goes from KES 15,000 to KES 32,000 (USD 138 to USD 295) per bed per month.

Some of the projects we are currently developing fall under the Qejani brand, our more affordable mass-market offering. The range of these rental rates is KES 8,000 to KES 12,000 (USD 74 to USD 111) per bed month.

How will Acorn’s new developments compare to what is currently available to students in Nairobi?

Right now what we have in the market are investors offering serviced apartments. However, for purpose-built student accommodation, you have to focus on 24/7 security and providing amenities like a café, supermarket and laundrette service.

We have worked hard to come up with a template that works – from a construction standpoint to the look and feel of the properties and the furnishings. We have a real operational focus. We want to give students a safe, healthy environment. We are there to address any queries, make sure housekeeping is done on time and provide security. We have refined the property management element over time.

Our biggest differentiator, however, is the community aspect. These students feel this is a home away from home, they are looked after, they feel safe and secure and there’s a certain brand association. The engagement and vibrancy in our common areas make it a fun place to live. Historically we’ve had waiting lists.

Do you see opportunities for student accommodation in cities beyond Nairobi?

Our market research indicates there is such a dearth of beds in Nairobi that we are happy to only focus on the city for now.

What are the biggest risks involved with developing a profitable student accommodation project?

The primary risk is location. You need a catchment area of students who would be interested in living in your property.

As a developer, if you cannot control your costs, you will find it hard to recover your money. You might need to make up for the higher cost by charging a higher rent. But are you going to get enough students willing to pay the higher rate?

From an operational standpoint, you have to ensure things run smoothly in the day-to-day management. Students are looking for safety, security and a vibrant atmosphere where they can thrive.

Investors need to be patient; this is not about quick gains. The market gap is so vast but it is not something you can capitalise on from day one. Any project takes three to four years to deliver. Expecting this to be something you come into for one or two years doesn’t make sense.

If you are investing directly in student accommodation, you also have to ensure you can fulfil the different elements of the value chain, from raising funding to acquiring new land to development and operations.

How will remote learning impact the student accommodation market in Kenya?

Covid-19 has revealed the resilience of our business model; that ultimately, people need housing. These young adults are independent and do not want to move back home and live under the supervision of their parents just because of a pandemic. There’s a defensive nature to student housing.

Feedback from stakeholders, such as students and university administration, is that online learning is not the permanent way forward but rather complementary and a fallback. The majority of the students are craving going back to university, being with their friends, and having discourse in classrooms rather than on a computer.

Also, what we provide in terms of amenities, like 24/7 electricity and broadband internet access, beats living at home or going upcountry and learning online.