Briefing: Consolidation ahead in the student housing sector

This year will see a wave of consolidation in the European student housing sector as institutional investors’ interest grows further, delegates heard at the European Student Housing & Micro Living briefing, which was organised by Investment Briefing and hosted by Squire Patton Boggs at their London offices on Thursday.

‘Institutional interest in student housing is growing because it’s a particularly good investment now that we are reaching the end of the cycle,’ said Samuel Vetrak, CEO of Bonard, formerly known as StudentMarketing. ‘It is a recession-proof asset class which guarantees returns whatever the economy does.’

There are 107 student accommodation portfolios in Europe – a portfolio being defined as comprising more than one building and more than 500 beds – and most are small players. ‘Institutional investors want portfolios rather than single assets, so we think consolidation in Europe is just starting,’ Vetrak said. 

2018 was another record year for the sector with investment volumes just below the €10 bn mark (€9.95 bn), over 140 transactions and 77,000 beds traded. The sector is attractive also because it still delivers good yields compared to other asset classes. In the UK, the most developed market in Europe, average yields were 6.5% in 2007 and 5.9% a decade later.

In the UK the total provision rate of purpose-built student housing compared to demand is 25-30%, compared to an average of 15% in Continental Europe, where there are huge disparities between a well-developed market like Germany and some Italian or Spanish cities in the low single digits.

‘Institutional investors now see an opportunity because Continental Europe is still heavily undersupplied’, said Vetrak, despite the rise in development and a strong pipeline in some markets. There are 350 projects either under construction or with planning permission in place, that will bring an additional 105,000 beds to the market in the next three years.

Paris is a good example: it has over 71,000 foreign students but supply is 6% compared to international demand. There has been investment in the sector and there are 7,000 beds in the pipeline. ‘Yet in order to reach a 20% provision rate it needs a further 52,752 beds,’ Vetrak said. ‘Even in places where there is a lot of supply coming, it is still not enough to meet demand.

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