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It’s probably the result of memories from their long-ago youth, but a lot of older Japanese people tend to have the stereotypical image that dwellings for college students are usually cramped and shabby.

Yet take a look at a nine-story building standing in the Hakusan district in Tokyo’s Bunkyo Ward. Walking through a locked automated entrance, the first thing that jumps out is the first floor looks like a cafe-style coworking space — except that it’s a public area for students.

The second to eighth floors are dedicated to living space for students, offering tidy bedrooms, shared kitchens stocked with cookware and appliances, as well as common areas with video games and a rooftop balcony.

What may be more unorthodox is that many of its residents are non-Japanese and the 364-bed facility, which opened in 2018, is not managed by a school but by a foreign business operator that only recently made a foray into Japan.

“We’ve entered the Japanese market primarily because there is a demand for student accommodations with quality global standards like this one, given Japan does not have enough,” said Taku Iwasaki, head of operations at GSA Star Asia KK, a joint venture between U.K.-based GSA, which specializes in providing student accommodations, and Tokyo-based investment firm Star Asia Group.

Amid the increasing number of foreign students studying in Japan, this kind of housing is likely to become more common, with developers and investors seeing rising opportunities in the nation’s student housing market.

A living room at a share house operated by Be Good Japan Inc. in Tokyo's Toshima Ward | KAZUAKI NAGATA
A living room at a share house operated by Be Good Japan Inc. in Tokyo’s Toshima Ward | KAZUAKI NAGATA

From the students’ perspective, such residences lower the many hurdles in securing dwellings in Japan given its real estate industry is somewhat notorious for being unfriendly to non-Japanese nationals.

Although the COVID-19 outbreak has paralyzed cross-border travel and negatively impacted the outlook for the student housing market, industry players and experts believe that the health crisis is just a short-term setback. They say once the pandemic calms down, Japan, which will continue to face labor shortages, will still be a popular destination for foreign students who want to study and eventually work in the country.

International students and booming investments

To bolster the prestige of Japanese colleges globally and lure talented individuals, Japan has been trying to attract more foreign students in the past decade or so.

In 2011, Japan saw just 163,697 foreign students. But that number had nearly doubled just eight years later, reaching 312,214 by May of 2019.

“It’s actually a very important growing sector within Japan’s higher education market,” Iwasaki said.

[click to enlarge]
[click to enlarge]

“We expect competition to eventually heat up. It is only a matter of time because there are many established private equity funds and institutional investors that are investing in this space.”

Iwasaki said GSA, which operates 47 student accommodations globally, aims to provide 5,000 to 7,000 beds in Japan in the next several years.

Japan’s major developers have also been cultivating the field. Tokyu Land Corp., a group firm of railway operator Tokyu Corp. and Itochu Property Development Ltd., a real estate and developer unit of trading house giant Itochu Corp., have started building student accommodations in the past several years.

In terms of real estate investment, student housing may not seem to be a mainstream asset class, but its popularity has been growing globally.

According to a report by Savills, a London-based real estate service provider, the total volume of global investment in student housing in 2018 was $17.1 billion (¥1.84 trillion), representing more than 400 percent growth over a decade.

“One reason behind this trend is that there are not many properties available for investment,” said Koji Naito, who heads the capital market research arm in Japan at Jones Lang LaSalle KK (JLL), a real estate service provider.

A common area of a student-accommodation facility run by GSA Star Asia KK in Tokyo's Hakusan area | KAZUAKI NAGATA
A common area of a student-accommodation facility run by GSA Star Asia KK in Tokyo’s Hakusan area | KAZUAKI NAGATA

Investors have already purchased traditionally popular properties, such as offices in busy urban areas, so they have had to seek a wider variety of options, including so-called alternative properties such as data centers, nursing homes and student accommodations, Naito said.

The student housing can actually be a solid investment, as the enrollment of higher education has been growing worldwide and students are becoming more globally mobile.

The number of international students worldwide grew to 5.3 million in 2017 from 4 million in 2012, according to the UNESCO Institute for Statistics.

Plus, rent is covered by parents in many cases, so owners can expect a stable cash flow, too, Naito said.

Hassle-free for newcomers

For students and their parents, finding places to settle in foreign countries can be worrisome.

In Japan, foreign nationals often face hurdles renting an apartment since some landlords are concerned about the language barrier and think they might cause trouble, such as not following garbage disposal rules.

“There’s still this strong reluctance (among landlords) to accept non-Japanese nationals. They are not really willing to accept even international students studying at well-known Japanese universities,” said Naito.

This makes the situation a bit complicated because even though Japan wants more foreign students, “there are not enough accommodations that they can casually apply for and settle into,” said Agata Ito, who heads Be Good Japan Inc., a Tokyo-based share house operator.

Ito has been providing share housing mainly targeted at students, including non-Japanese, for more than 10 years.

His firm runs 39 share houses with a total of around 750 rooms. The houses are kept neat and are provided with common areas, kitchens and washing machines. The number of rooms varies depending on the house but many of them provide around 20 private rooms — most of which are about 7.5 square meters in area and come with a bed, study desk and minifridge. The rent is around ¥70,000 monthly.

While primarily being targeted at foreign students, Ito said the doors are also open to Japanese to keep a good mix and to encourage diversity so that foreign residents can experience real Japanese living culture.

“To understand people and the culture of a country, I think living with (locals) is important,” he said.

“Every day, you come in contact with different people and speak to them. Even though they stay for a short term, you can still communicate and share different things with them,” said Crystal Pak, a 24-year-old Hong Konger, who lived in one of Be Good Japan’s share houses in Tokyo. “So I think it’s quite fun to live in a share house.”

An individual room for residents at a share house operated by Be Good Japan Inc. in Tokyo's Toshima Ward | KAZUAKI NAGATA
An individual room for residents at a share house operated by Be Good Japan Inc. in Tokyo’s Toshima Ward | KAZUAKI NAGATA

Pak, who went to a Japanese language school and stayed at the share house for nearly a year and a half, added the place also gave her an opportunity to practice her Japanese language skills.

GSA Star Asia’s Hakusan accommodation also accepts students, including Japanese, from various colleges such as the University of Tokyo, Waseda University and Temple University, and those attending Japanese language schools. The firm said attracting more Japanese students is critical to grow in the domestic market.

It offers six person and two person shared rooms, while single rooms are also available. Their costs are ¥80,000, ¥104,000 and ¥140,000 per month, respectively.

Iwasaki of GSA Star Asia also stressed the importance of having a good mix, diversity and a community experience that also involves GSA staffers.

GSA employees frequently visit the housing facilities and communicate with residents to act as mentors and provide assistance.

“If it’s just the hardware, anybody can copy us. Our value proposition has to be somewhere different,” Iwasaki said.

COVID-19 nightmare, a temporary setback?

With the investment boom and growing number of foreign students, the outlook for the student accommodation market had appeared quite promising.

However, the coronavirus outbreak has drastically changed that landscape — at least for now.

In early April, the Japanese government implemented tighter controls that effectively froze cross-border movement.

GSA actually rolled out its second student accommodation in Japan in Tokyo’s Suginami Ward in March, but many of foreign students scheduled to live there canceled due to the health crisis.

Be Good Japan’s Ito said his firm also saw about 250 cancellations, which is about one third of its total share house rooms.

“To be honest, the timing was really bad,” said Ito.

In Japan, the March-April period is a transitional period in Japan’s academic calendar, so student accommodations normally see many residents come and go.

What’s more, such operators have faced the challenge of preventing infection outbreaks within their properties, which due to the nature of the share facilities, are at great risk of seeing the spread of the virus.

Crystal Pak, right, reads a book in a study room at a share house operated by Be Good Japan Inc. in Tokyo's Toshima Ward in March. | KAZUAKI NAGATA
Crystal Pak, right, reads a book in a study room at a share house operated by Be Good Japan Inc. in Tokyo’s Toshima Ward in March. | KAZUAKI NAGATA

At GSA’s Hakusan accommodation, the company stopped room sharing and has given each resident its own room to prevent the virus from spreading. It has also distributed face masks.

Ito’s Be Good Japan has also provided face masks and sanitizers at a number of its share houses while sending out emails about virus measures in Japanese, Chinese and English.

Although it’s still not known when people can freely start traveling again, the housing operators believe that the trend of increasing foreign students wanting to study in Japan will return once the COVID-19 pandemic calms down.

“At the end of the day, if the business normalizes, we’ll still have that demand,” said Iwasaki, adding that the field of education is “resilient” to economic downturns.

Ito also said since aging Japan will still need a foreign workforce, coming to study Japan and work here will continue to be an appealing option for foreign students. He added that more than 250 people who are hoping to start studying in Japan from October have reserved rooms.

JLL’s Naito said investors are still hungry for real estate investment — including student housing even after the coronavirus outbreak. This is partly because the economic fallout this time has not severely damaged financial institutions like it did when during the 2008 global financial crisis.

It’s likely to take some time before international traveling returns to normal, but “I don’t think the investment (in student housing) is going to stop,” Naito said.

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