RudiErnst/Depositphotos.com
Maria School, Flensburg, Germany
It has long been a policy dilemma: how to address Germany's vast shortfall in school and daycare infrastructure while keeping education firmly under public control. Now, as the estimated investment backlog surges past €68bn, more municipalities are beginning to outsource what they cannot afford to deliver. That shift is finally opening the door to institutional capital—and with it, the prospect of educational real estate emerging as a defined asset class.
A landmark study by bulwiengesa, released in June, describes the segment as one of the most underestimated in German real estate. The firm, better known for its data work in commercial sectors, has turned its attention to schools, daycare centres and universities—and concludes they offer an unusually compelling blend of stable cashflow, ESG alignment and social impact. "Educational real estate combines stable rental income with social impact – a rare combination that is particularly well suited to the requirements of modern impact investors," said CEO Sven Carstensen. For the first time, the study includes comparable figures on rental levels and yield expectations across the educational segment. Typical lease terms range from 10 to 30 years, often fully indexed to inflation. Gross initial yields are estimated at 4.5–5.5% for standing assets, and higher for project developments.
These findings are strongly echoed in PwC's February 2025 study, which frames school buildings as a "lucrative investment" with net initial yields of 4.5–5.5% and equity returns of up to 8%, depending on leverage and development risk. The study cites the same fundamentals: outdated building stock, surging demand driven by demographic pressures and immigration, and municipal funding shortfalls. According to Benjamin Schrödl, Head of Real Estate M&A at PwC Germany, municipalities increasingly seek private-sector partners to refurbish, expand or entirely replace school infrastructure. Long-term leases of 30 years, fully indexed, and default-resistant tenants make the segment attractive to insurers and pension funds. As he puts it: "Educational properties have a high social impact. Especially for new construction projects, it is important that they meet comprehensive ESG criteria. This makes it easier for investors to finance the properties."
Investment models and rental structures
PwC also outlines the routes into the segment: sale-and-leaseback, land lease developments, or forward funding on municipal land. Rental levels typically range between €16 and €23 per sqm, though figures vary depending on asset quality and customisation. The study highlights the role of federal and state funding programmes linked to inclusion, digital infrastructure and comprehensive schooling as important complements to private capital.
This growing convergence of financial interest and public need has begun to shift attention toward more formalised, structured collaboration models. As bulwiengesa's Carstensen noted, this is a specialist market. Approval processes are complex, access is politically sensitive, and market transparency remains low. Yet bulwiengesa’s initiative has drawn early support from major players including Hemsö, HIH Invest, Next Generation Invest, DKB, and ARE Austrian Real Estate, and growing specialists like Audere Equity Group. The firm is now coordinating a new Education Real Estate Initiative, aiming to introduce standards and deepen cooperation between municipalities, developers and capital providers.
The rationale is clear enough: public funding cannot keep pace with rising demand. Legal entitlement to full-day childcare from 2026, combined with migration and the reversion to G9 schooling, will require up to 700,000 new school places by 2030. The PwC study cited an investment backlog of €55bn for schools alone. According to PwC's Benjamin Schrödl, long-term indexed leases, minimal tenant default risk and the social relevance of these assets make them an excellent portfolio fit for pension funds and insurers. Net returns of 6–8% on equity are possible, depending on leverage and asset type.
Private capital steps in
The Cologne-based Next Generation Invest has positioned itself at the centre of the segment, managing €760m in assets across six funds. Its Next Impact Fund, launched in 2020, focuses on daycare centres, alternative schools, student residences and public sector offices. CEO Hannes Ressel is now raising a further €100m in equity for a follow-up vehicle, the Lifelong Learning Fund. The group recently acquired Munich’s adult education centre from a Catella-managed open-ended fund, as well as new-build university and nursery buildings in Saarland. Typical rental ranges lie between €10 and €35 per sqm, depending on tenant specifications, Ressel says. Lease lengths are usually between 10 and 25 years, and often indexed. He reports a 2024 net distribution of 4.75%, with a target of 5% for 2025, achieved without new purchases.
"Local authorities are saying: I’ll do 80% myself, but outsource the rest," says Ressel. Several cities are now offering sites to private developers on the basis that partial outsourcing is the only way to meet capacity requirements. Ressel notes that many school buildings are being sold by institutional owners who need to offload office-heavy portfolios, creating secondary market liquidity. But the main focus remains forward funding or sale-and-leaseback with municipalities.
Hemsö, the Swedish social infrastructure investor, started projects worth over €210m in 2024 alone. These include a school conversion in Cologne, and a new-build in Rangsdorf near Berlin. Managing Director Jens Nagel believes these schemes could serve as blueprints for further national rollout. The firm is working closely with ARE Austrian Real Estate, its JV partner in Cologne. HIH Invest, which has long targeted social assets through its Zukunft Invest fund, is also preparing to expand beyond daycare centres into school developments.
As Felix Meyen, managing director at HIH Invest, puts it: "The number of places doesn’t match the number of pupils." ESG regulations and demand growth have combined to push education assets higher up the priority list. According to Meyen, many municipalities are increasingly out of step with demand, particularly in urban regions. But mistrust of PPP structures remains, and political sensitivities continue to delay project approvals.
For all that, the mood is shifting. Karin Barthelmes-Wehr of the ICG notes that several cities are now more open to structured alliances. Meanwhile, investors who once steered clear of social infrastructure are recalibrating. The message is clear: educational real estate is is no longer a fringe asset. It may not yet offer scale, but for capital with a long-term horizon and ESG ambitions, educational properties are becoming difficult to ignore.