Student housing is just starting to become an investable asset class in CEE but it’s already facing stiff competition, delegates heard at Real Asset Media’s CEE Student Housing and Co-Living Investment Briefing, which was held last week at the offices of CMS in the City of London.
It is not competition between investors, however. ‘Development hasn’t caught up with demand because there is so much competition from other asset classes,’ said Luke Dawson, Managing Director & Head of Capital Markets CEE, Colliers International.
‘In the last twelve months we have seen new entrants to the market, who represent an additional layer of competition,’ said Rainer Nonnengässer, CEO, International Campus. ‘But the biggest competition is with other asset classes’.
Residential is an obvious choice for developers who have a suitable site and planning permits in place.
‘Residential is financed through pre-sales with very little risk, so there is less of an incentive for the average developer to put money into student housing’, Dawson said. ‘Construction costs are growing faster than house prices, so developers try to maximise their profits’.
The main reason for increasing construction costs is the rising cost of labour, with wage growth at 10-15% a year, well above the rate of inflation. ‘It is not a problem specific to construction, we see in manufacturing and in all sectors,’ he said. ‘Given labour shortages, I don’t see wage growth slowing down anytime soon. It is getting to the point when developers’ margins are being squeezed and they are starting to pull back’.
A lot of investors in the last 12 months have asked to be put in touch with developers, he said, but often they are not interested. ‘They prefer to do it on their own’.
The number of investors who want to buy student housing in CEE is ‘off the chart’, but most of them don’t want to develop and don’t want to operate. What the market needs is more companies like International Campus, said Dawson, who ‘do it all themselves, from financing to developing to operating’.
It will be smaller groups investing in the sector in the foreseeable future. ‘If there was enough scale the large PE groups would come in, but they need a €100-200 mln price tag at least and also a portfolio in different cities,’ said Dawson. ‘They will not move for a €20 mln asset, so until we get some scale only the smaller players will be active in the market’.
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