Student housing is now ‘an institutional investment product’

Student housing
dormitory building perspective background

Fundamentals continue to drive the market, as the international student population is growing in most countries and the asset class is more scalable than some alternatives.

The student housing market in Europe has made the grade as an institutional investment product, according to Christof Flöckner, managing director of Milestone. At Real Asset Media’s recent Student Housing & Micro Living briefing, he pointed to the maturity of the asset class.

“Co-living is almost like a start-up scene, in that the scalability and investment product are still lacking,” he said. “Student housing started in the UK, of course, but it has now become a truly institutional product across the whole of Europe.”

Student housing is also “much more scalable” than some alternative asset classes such as data centres, said Julia Oravec, rented residential director at Bonard. “Last year, the number of portfolios grew by 15% in terms of numbers, and we see a low-digit increase so far this year as well.”

Investors with over 10,000 beds are not ready to sell, but continue to consolidate and expand their portfolios, she said. “The trend in Europe is now similar to more mature countries like the UK, where the market is also still consolidating and growing.”

‘Last year the number of portfolios grew by 15% in terms of numbers, and we see a low-digit increase so far this year as well.’

Julia Oravec, Bonard

While investors are hungry for product, a significant bottleneck is that developers are scrambling to obtain funding, said Christian Scheuerl, managing director of Neworld Investment Management.

“Even a couple of years ago, we were already saying the investment market was struggling because of lack of product and high prices. The prices have come down, at least for land. But now there are no developers left who can execute, because of a lack of sufficient equity.”

This means not many transactions are being done currently, which creates an opportunity for people with ready cash, he said. “If you are ready to buy, you can make really good money in a few years.”

There is plenty of capital ready to commit to new deals, but much of it is targeting existing assets, Scheuerl observed. “If you ask private equity investors in London or the US what they are looking for, they say they want to have cashflow quite quickly.”

Growing student population

There is a significant pipeline – 60,000 beds a year, according to Bonard research – but new developments will still not be enough to meet demand, Scheuerl said.

“There’s a lot of interest in the sector and many new investors are entering the market,” said Marek Obuchowicz, a senior partner at Griffin Capital Partners. “People are willing to deploy more money to grow their platforms.”

The fundamentals will continue to drive the market, as Bonard data shows: the international student population is growing in most countries, even in Germany, where domestic student numbers are flat. The Netherlands have experienced a 70% rise, Germany 25% and France 18%.

‘The most important thing is creating a community in a building. It’s a good thing to do but it also makes sense, because if students are happy then they will stay longer.’

Sander Verseput Chainels

“We base our investment decisions on data and we believe this asset class will continue to grow,” said Flöckner. “The macro trend is that the student population is growing every year, especially international students. Countries like Germany and the Netherlands that offer the most university courses in English have really benefitted from Brexit.”

One of the consequences of the UK’s decision to leave the EU is that tuition fees for European citizens – no longer regarded as domestic students – have increased dramatically, leading to a sharp drop in applications to UK universities.

Poland is catching up, said Obuchowicz. “At present, 10% of students are foreign, but the percentage keeps growing because of the increase in courses taught in English and Polish universities being increasingly recognised internationally. Lower costs, both for tuition and accommodation, are also an important factor.”

Because of the demand, occupancy rates are high and rental levels are growing at above pre-pandemic levels and inflation. “Affordability is becoming a real issue in many countries,” said Oravec.

The situation differs from country to country, said Flöckner. “There’s usually a range of options on offer, but in Poland, the cheapest rooms get filled first, while in Italy, the most expensive options are the ones that get snapped up quickly. But there always needs to be an affordable option.”

Student housing
Christian Scheuerl (centre): “Prices have come down, but now there are no developers who can execute because of lack of sufficient equity”

ESG comes to the fore

In the last few years, ESG has come to the fore, in particular the environmental aspects in which young people take an interest. However, the focus has shifted to the social aspect more recently.

“Usually, the S in ESG is difficult to measure, but in the case of student housing, it’s pretty obvious, because you are creating a community,” said Flöckner. “There’s a care aspect to bringing people together, and all our staff receive mental health training.”

Technology can play an important role in connecting and sustaining the community, facilitating interaction.

“Proptech has enabled online viewings and the services-subscription model, making life easier for Gen Z, who want flexibility and are always online,” said Sander Verseput, chief operating office and chief financial officer of Chainels.

“But the most important thing is creating a community in a building. It’s a good thing to do, but it also makes sense, because if students are happy, then they will stay longer.”

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