A post-covid bounce in enrolments and rising interest rates make purpose-built student accommodation more attractive, says Antonio Marin-Bataller.
Students have returned to universities across Europe in large numbers this autumn, as memories of the pandemic fade and fears of having learning disrupted by lockdowns ease. This post-covid bounce in enrolments is coinciding with a number of important market dynamics that are putting the sector on the radar of many institutional investors as they look to diversify their portfolios.
New frontiers for investment in student housing are opening up across Europe, as global trends drive change and markets begin to mature. So, what is making purpose-built student accommodation (PBSA) so attractive? And where do the best opportunities lie?
It’s more than just an uptick in student numbers that is making the student accommodation sector an attractive investment proposition. PATRIZIA has been one of the most active investors in the European PBSA market in the past six months, investing €550 million in 2,800 beds in Ireland, Spain, Italy and Denmark. Our most recent deals were in Turin and Barcelona, comprising 1,209 beds with a total investment of €173 million, and more are in the pipeline.
Student accommodation has proven far more robust as a sector than many expected two years ago. When covid-19 hit, student housing occupancy dropped significantly. At the time, many investors were looking for distress, hoping to secure PBSA assets at knock-down prices. But this never happened. Investors and lenders instead battened down the hatches and waited for the covid storm to pass.
Pricing remained resilient, meaning the yield profile remained at or close to pre-covid levels. At a time of rising interest rates, alternative-living sectors, such as student, senior living and micro-apartments, are increasingly attractive to institutional investors looking to diversify their portfolios and enhance returns.
Student accommodation is also benefiting from strong rental growth as, in most European countries, the sector sits outside the regulatory framework that constrains growth in residential rents, allowing investors in PBSA to capture the full growth in estimated rental value (ERV). Investors are seeking PBSA assets that give them exposure to this as quickly as possible.
Of course, some markets hold greater potential than others. At PATRIZIA, we are particularly interested in Italy, where the PBSA market is embryonic. In Turin, where we completed a 582-bed deal in the summer, there are around 107,000 full-time students, but just 6,611 beds available, of which only 1,767 are modern PBSA.
Historically, accommodation was provided by universities or religious institutions. Much of it is now outdated and no longer meets the expectations of a new generation of students.
The 469 high-quality micro-apartments of the Urban Isle Campus in Hamburg are aimed at students and young professionals
Spain is an attractive market, as studying away from home – a familiar experience elsewhere – becomes more established.
Spain benefits from the Spanish-speaking diaspora, with strong demand from central and South America. It is also now the number-one destination for European students under Erasmus+, the EU’s university-exchange programme.
While there are pockets of oversupply, in cities such as Seville or Malaga, in Barcelona and Madrid, which have significant site constraints with space at an absolute premium, PBSA is a hugely attractive investment.
Denmark more developed
Denmark is more developed, but still attractive. In Copenhagen, we completed the largest student housing portfolio deal in Denmark to date earlier this year.
The city now has one of the best universities in continental Europe, with the University of Copenhagen reaching pole position in CWTS Leiden’s 2021 ranking. Its students can achieve academic excellence while enjoying incredible quality of life.
Aware of its attractions, a growing number of international students are flocking here.
Unlike countries such as the UK or Ireland, Denmark’s student-housing sector provides an additional layer of security for investors, as it offers a flexible-use class that incorporates residential use. This means developments can be targeted at professionals who are happy to live in a micro-apartment, as well as students. At PATRIZIA, we remain firmly interested in further opportunities in Copenhagen; Aarhus, Denmark’s second-largest city; and other university cities.
The European PBSA sector is benefiting from global megatrends such as demographic changes and increasing urbanisation. More and more people are flooding to big cities and choosing to stay in education for longer.
We expect the PBSA sector to prove resilient as European economies nosedive. Data shows that more people choose to study or remain in education for longer during recessions.
The impact of Brexit
Brexit has also affected the sector. European students are starting to shun the UK and seek alternative universities in continental Europe to avoid paying full international fees and having to deal with complicated visa requirements and entry restrictions.
Universities in the Netherlands, Germany, Spain and elsewhere are increasing the number of English-language courses they offer, to capitalise on this trend.
‘Amid deepening economic gloom, we expect student accommodation to rise to the top of institutional investors’ shopping lists.’
Antonio Marin-Bataller, PATRIZIA
So, which countries in Europe offer the most-interesting investment prospects in terms of student housing? Certainly the Nordics, but we also see Ireland and the Netherlands as two strong beneficiaries of Brexit, as these are set to attract more EU students; Dublin welcomed 139% more European students following the UK’s exit from the European Union.
PATRIZIA has already entered the Irish market, buying two PBSA assets for €120 million in Dublin last December.
The Netherlands and germany
The Netherlands has a complex regulatory framework, which can make investment more difficult, but the supply and demand equation is very attractive. Indeed, in Amsterdam this summer, universities asked international students to defer their studies unless they already had beds secured. There were simply no rooms left.
Germany, of course, remains attractive, but is a much more mature market. Investors must be selective, as there are pockets of oversupply, but there are also locations with huge potential. Take Hamburg, Germany’s third-largest university city after Berlin and Munich. Demand for student living space from its around 100,000 students is enormous and far outstrips supply.
Here, PATRIZIA acquired a residential turnkey development in January that is scheduled for completion in autumn 2024. The Urban Isle Campus is aimed at students and young professionals and will provide about 10,100 sq m of residential rental space across 469 fully furnished, high-quality micro-apartments with an average size of 23 sq m.
As more real asset investors shuffle their portfolios amid deepening economic gloom, we expect student accommodation to rise right to the top of many institutional investors’ shopping lists.
Certainly, in an inflationary environment, PBSA is looking more and more attractive. With a range of markets at various stages of maturity across Europe offering great potential for investment, student accommodation is likely to remain a busy sector, even as winter falls on other asset classes.
Antonio Marin-Bataller is managing director of pan-European transactions at PATRIZIA