Student housing deals to break through €1b barrier in Germany this year

Student housing deals are expected to break through the €1b barrier for the first time this year, according to Savills’ report ‘Spotlight: Student housing Germany’, published this month (June).

The rapid growth in Germany’s student housing sector means that more and more deals are being transacted, according to Matti Schenk, a senior consultant in research at Savills in Berlin.

‘The student apartment market in Germany has passed the pioneering stage and is undergoing institutionalization,’ Schenk said. ‘At the same time, supply is becoming increasingly differentiated but remains highly priced.’

There were around €218m in student housing deals in the first quarter, according to Schenk, putting the market on course to ‘comfortably’ hit the €1b by the year end, up from €750m last year.

Investor interest has increased dramatically over the past year. ‘We are seeing an increasing appetite for investment in the German student housing market. Investments in more specialised assets such as student housing is of growing interest to international and domestic investors due to the lack of core and core-plus real estate investment opportunities,’ said Hanjo Theiss, valuer and specialist for portfolio and transaction advisory at C&W in Frankfurt. ‘The segment is becoming established as an asset class in its own right, not only in Germany’s Top 5 cities but also in the regions.’

Global asset and investment manager MCP Capital is believed to have just developed a €200m student housing portfolio in Bonn and Hamburg, which it is expected to bring to market shortly, according to those who track the market. The group could not be reached for comment.

In March, Catella Real Estate made its first purchase for its Catella European Student Housing Fund. The property, which is located in the district of Lichtenberg, was acquired for €41m from Berlin-based developer the Homepoint group and comprises a development scheme for 425 residential units in Berlin.

‘We are pleased to have acquired this building from the Homepoint group, in a good location in Berlin, for our new student fund,’ said Xavier Jongen, head of residential funds at Catella. ‘Considering the continued large inflow prediction for young academics to be enrolled here in coming years, the demand for affordable student housing in Berlin will remain high.’

Nonetheless, there is a shortage of student housing in almost all German cities, with a provision rate of around 11%, according to Savills. The problem is being exacerbated by record student numbers: around 2.8 million students signed on at universities in the 2016-2017 winter semester, setting a new record against a backdrop of rising numbers over the past nine years.

‘Students and young professionals are fighting over the same housing,’ said Schenk. ‘Many students are being pushed out of the open housing market because young professionals and older people looking to downsize are looking at the same apartments. There is a lot of competition and not all landlords want to rent to students. There is a huge demand today for micro apartments of around 20 sqm and in the long-term that is set to increase.’

Theiss at C&W agrees: ‘Developers are targeting the upper end of market rents (all-in rents) by creating a new asset class of micro apartments confined not only to students but also aimed at young professionals and commuters,’ he said.

Subsequently, the growth in supply is unable to keep pace in many university cities and student housing rents in Germany are soaring due to both a lack of existing supply and adequate new housing, according to a study published earlier this year by the Cologne Institute for Economic Research (IW), German Real Estate Funds (DREF) and real estate portal ImmobilienScout 24.

The study analyzed student rents in 15 German cities in the second half of 2016. Mid-market rents in these cities – which include Munich, Berlin, Cologne and Frankfurt – have risen on average by around 25% since 2010 to around €10 per sqm a month, excluding energy bills.

Munich tops the list of unaffordable student housing, with a 30 sqm apartment with a kitchen in close proximity to the university typically costing €630 a month for the summer semester this year, including energy costs and TV subscription. This represents a hike of 30% since 2010. Even in Berlin, rents have rocketed a massive 57% between 2010 and 2016 to around €416 a month, at around €9.70 per sqm. In Frankfurt, prices have risen to around €13 per sqm, up from EUR10 in 2010, according to the study.

‘Shortening school in Germany by one year and abolishing military service has helped to boost student numbers,’ said Konstantin Kortmann, head of residential investment Germany at JLL. ‘We’re seeing a lot more international students who are attracted to the fact that German universities are still free and classes are increasingly taught in English. Multiples for student housing have moved up a factor of 2 since 2015. Today, you’re looking at yields of 4.5% to 5% in major cities or 6% in B locations.’

Between 2011 and 2015, Berlin, Stuttgart and Munich only managed to build around 40% of the apartments needed. Kiel fared even worse, with just 27%, according to the IW.

Today, student associations remain the largest providers of student accommodation, with a combined total of around 114,000 beds in the top 30 university cities, according to Savills. Other non-profit providers, such as churches and foundations provide an additional 22,800 beds, according to Savills’ report. These providers and associations also have almost 5,000 places under construction or in the planning stages.

And while private operators currently only provide around 38,500 beds in the top 30 cities, they have nonetheless tripled their stock since 2010. A further 24,500 beds are forecast to be added in the next few years, which means their supply should increase to around 63,000 beds by 2021, according to Savills’ report.