Student housing rents soar as supply stalls

Student housing rents in Germany are soaring due to both a lack of existing supply and adequate new housing, according to a study published this month by the Cologne Institute for Economic Research (IW), German Real Estate Funds (DREF) and real estate portal ImmobilienScout 24.

The study analyses 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.

However, rents in once cheap and cheerful Berlin have rocketed the most, jumping a whopping 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.

‘Berlin is attracting a lot of people, in sectors such as tech and the media as well as students,’ said Dr. Philipp Deschermeier, an economist specialising in real estate and finance at the IW who was behind the study. ‘As a result, demand for housing has skyrocketed in recent years and the construction industry cannot keep up. We are forecasting that Berlin will grow to around 4m inhabitants by 2035 – 500,000 more than today – so the city will need a lot more homes to keep up with demand.’

German student levels are at an all-time high, which is compounding the problem, according to Deschermeier. He notes that there are currently around 3m students at university in Germany, including foreign students. ‘Germany is an attractive country for foreign students because university education is free, unlike other countries, such as the US,’ he said.

In Eastern Germany prices are, predictably, cheaper. A student in Leipzig typically pays around €322 a month, up 21% since 2010. It is a similar story in Jena, with rents of €377 a month, up €27 a month since 2010, according to the IW study. The cheapest apartments are also in the east: rents in Chemnitz are around €210 a month compared to €240 in Halle, according to the study.

Rising rents are largely due to the lack of two-and-three room apartments, according to the IW’s ‘Building demand model’ based on construction activity. Only a third of the cities studied are building enough apartments of this size, according to the IW. However, the construction of micro apartments – or studio apartments – is outstripping demand. Subsequently, the IW advises investors to focus more on much needed two-and-three room apartments, which are more suited to the ‘WG’ set-up where several students share an apartment and, therefore ‘offer the best opportunities’, according to the study.

‘In Germany, there is a strong tradition of students choosing WG-style, shared flats over studios. Students like older buildings and have an emotional attachment to them,’ said Dr. Konstantin Kortmann, head of residential investment Germany at JLL. ‘Residential rents in Germany have gone up a lot in the last few years, largely because everyone is targeting the same kind of apartment – whether it’s students or a family, there are a lot of people looking for one-to-three room apartments and there are not enough of them, which has pushed up rents,’ he added.

Indeed, given the sharp uptick in rents, more students are likely to live at home and study in their home city, according to Deschermeier: ‘This is already starting to happen and I think we’ll see more of it going forward,’ he said.

With the exception of cities such as Bochum and Jena, most cities are still woefully behind on construction, according to the study. For example, 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%.

While rising rents and strong demand spell good news for would-be investors in the student housing sector, it is clear that many students are facing increased living costs due to rapidly rising rents. In order to see any downward pressure on rents going forward, far more apartments will need to be built. But, until that happens, rents are expected to keep on rising.

‘I think that because supply is tight, rents will continue to rise for some time,’ said Kortmann. ‘We see now that when it comes to rents, it’s no longer really about the price per sqm but, rather, about the overall budget and students having to work within those constraints.’