Briefing: ‘Do not fear the second tier’

When it comes to student housing Europe’s winning cities are the most obvious target, but investors willing to do a bit more homework can find interesting opportunities in secondary cities as well, delegates heard at Investment Briefings’ European Student Housing & Micro Living panel, which was held in London last week.

‘My motto is do not fear the second tier,’ said Andrew Allen, Global Head of Investment Research Real Estate, Aberdeen Standard Investments. ‘If you are a long-term investor then you should worry less about liquidity and put your capital in secondary cities where there is less competition.’

Yields also tend to be higher in secondary cities. 

Panel discussion, Student Housing & Micro Living Investment Briefing, February 2019, London

‘I agree that we should not fear the second tier,’ said Samuel Vetrak, CEO of Bonard, formerly known as StudentMarketing. ‘When it comes to education, smaller university towns are very different from secondary cities in general. Think of Heidelberg, which is not a big-ticket place but has a great history and reputation as a university town.’

Investors should also look at the spillover from University. In the UK, Germany and elsewhere many university towns have created thriving innovation and business clusters, which means students stay on to live and work long after their degrees. 

Not all panellists agreed. ‘It is true that bigger cities have lower yields, but they also offer more certainty,’ said Christian Scheuerl, Managing Director, MPC Microliving Development. ‘Some college towns that rely on just one faculty can be a struggle, and some private universities have failed in Germany’.

In the UK ‘the regions are more saturated than London, were demand is stronger and the risk is smaller. Despite the amount of development that has gone on in London, it is far from being a saturated market.’

In Germany, bigger cities like Frankurt and Berlin are easier to understand for a first-time investor to the country, but for ‘investors who have done their homework, are more familiar with the German market and want long-term higher yields, then the smaller cities are perfectly fine,’ he said.

The other problem is that institutional investors want size, Scheuerl said: ‘They want to invest €200 mln rather than €20 mln, so most assets are too small for them. In Germany large buildings are not readily available and they are not easy to build either. All the big investors have raised funds for student housing in Germany, but they find it difficult to commit the equity.’

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