Demand for student accomodation in Germany and elsewhere in Europe has come surging back after a brief lull due to the pandemic, with observers expecting a bumper year ahead. The purpose-built student accomodation (PBSA) sector's rebound is expected to be accompanied by the co-living and other long-stay concepts for expats and young professionals as the COVID-induced restrictions on travel and attendance-in-person are increasingly rolled back.
At a recent online press conference looking at the future of student housing and micro-living, Rainer Nonnengässer, chairman of early pioneer International Campus (IC) said: “We estimate that more than 600,000 first-year students are pushing onto the housing markets of Germany. Many young people who had to postpone their academic studies or the flat-hunting are eager to get started at long last. It is practically a double cohort of new and old first-year students from inside and outside Germany who will attend classes in person at the higher education institutions in metropolises and campus towns. As people adjust to the new normal, many international students will gradually return to German universities.”
Looking at the wider European outlook for PBSA, Nonnengässer added: “The situation on the popular Central-European residential markets is strained. In Germany, an estimated total of more than three million students today is matched by merely 260,000 beds offered by private and public-sector or non-profit student housing providers. Now, as then, there is a conspicuous lack of accommodation for students and career starters, with demand far exceeding supply. Moreover, the COVID-19 pandemic has made it crystal clear how important it is to have a sufficient supply of adequate dwelling and living space, and this is particularly true for students and career starters. The boom in the PBSA asset class took only a breather during the pandemic.”
Alexander Lackner of neworld, part of the Berlin-headquartered CR Group and focused on developing sustainable urban spaces, told the conference about the increasing shortage of affordable urban residential accomodation, and talked about the rise of co-living as an alternative for young professionals.
“According to a UN forecast, about 84 percent of the EU’s entire population will be living in cities by 2050,” he said. “This means that affordable residential accommodation in conurbations will become increasingly scarce. Finding a place to live will therefore pose a particularly tough challenge for young professionals. Co-living concepts including serviced apartments could be the answer to many questions raised by the urbanisation process. These offer young professionals apartments ready for occupancy and equipped with en-suite bathroom, kitchenette and add-on services. In addition, they have direct access to community areas, such as gyms, cinemas, roof terraces or shared kitchens, and young people get to join a community of peers. The coronavirus pandemic has shown: Especially the social component is something that will have to be integrated in modern residential formats, because social isolation can become a major issue. Hence the trend toward smaller dwellings and extra community areas.”
Amar Eskef, head of data science at Berlin-based 21st Real Estate GmbH, highlighted the growing role of data and AI in knowing where demand is likely to occur, and even how this has changed since the onset of the pandemic. “Even before the pandemic, we saw an increasing interest in alternative types of use such as student housing and micro living, but the identification of suitable locations and analysis of local conditions increased significantly because of the COVID-19 pandemic,” he said.
“The meaningfulness of the pre-corona market data has deteriorated significantly as a result of the pandemic, although today there is more reliable data for student housing and micro living.” Amar Eskef further explains: “We must be very clear about, that there is not just one best fitting location for a project. A location is only as good as it serves the preferences of the user groups or the investment profiles, regardless of whether it is student housing and micro living or the classical sense of residential or office.
"Our market and location analysis tool RELAS offers market players the opportunity to decide for an individual combination of various parameters such as real estate market data based on their own market expertise. This socio-demographic data, points of interest, connection and accessibility can be used as the basis for a high-quality location search use."
Rents rising more slowly due to student absences
The latest MLP Student Housing Report 2021, carried out by the German Economic Institute (IW Köln), shows that the pandemic has noticeably slowed the rise in rents for student accomodation over the past number of years, although they remain high as competition for places remains acute.
The report shows that nationwide student rents increased by an average of 1.8%, whilst flatshare rents rose by 0.9%.
The rent increase affects 19 out of 30 university cities in Germany, and then in varying measures. For example, in Munich where students pay just over €800 for 30 square metres of living space, rents have only increased by 0.1%, whereas in Freiburg where students only pay €515 euros for 30 square metres, rents have increased by 5.9%. Cities like Magdeburg (€289) and Leipzig (€355) in eastern Germany are among the cheapest.
In some places, like Stuttgart and Frankfurt, student rents have actually fallen, due to increased supply coming on stream as students stayed away.
However, students are often finding themselves competing with single young professionals or weekend commuters for lower-priced urban accomodation. The loss of part-time jobs in the tourism and catering industries has also affected students' ability to compete with other young people for accomodation.
The German Student Union (DSW) recently published figures showing the waiting lists of the thousands of students on waiting lists for student accomodation. In Berlin alone there are around 3,800 students on the waiting lists, while 2,700 students in Frankfurt are waiting, as are 2,200 in Heidelberg.
Munich has around 15.000 students on waiting lists for housing accommodation, albeit including applicants from previous terms. However, the situation is so tight that the city has called on private landlords to offer their apartments to students.
Matthias Anbuhl, the secretary-general of the German Student Union, is calling on the federal and state governments to invest in more student accomodation. “Since 2007, the federal and state governments have increased the number of state-sponsored study places by 52% - but since then the number of state-sponsored dormitory places has only increased by 9%,” he said.
Despite the pandemic, Germany still remains among the most attractive markets for investors, as student housing has been greatly profiting from the increasing attraction of studying in Germany for international students, both for the academic and technical competence in the country's college faculties, as well as the favourable cost of living compared to other non-German overseas locations.
The Brexit outcome has also increased Germany's attractiveness, particularly for EU students, as access to British universities is now more difficult and less accessible due to the British departure from the Erasmus exchange programme.
International Campus's Rainer Nonnengässer adds his voice to the call for more building. “We need to put a framework in place which allows for more and significantly faster development of stock. The only solution is enabling those who are active in the market to build more”.
The growing level of demand and the lack of available product is arguably hurting families more than students, he suggest. More rent controls won't solve the problem - only more development will.
Samuel Vetrak, the CEO of research group Bonard, has also spoken out recently about the mismatch between demand and supply in the segment, with significantly more capital available than there are opportunities to deploy it. With planning permits taking two to three years to be issued for new builds, "It is just so difficult to get something developed in this asset class", he says.
Bonard data shows that there are 180 new schemes a year coming to the market in Europe, which is nowhere near saturation. In the UK, Europe’s most mature and developed student housing market, the bed-to-student ratio is 30%, while in Continental Europe it is 14-16%.
The shortage of PBSA across Europe is acute after COVID while international student mobility is still restricted. Nonnengässer warns: “We should also keep in mind that that many students from countries like China, Australia or Canada are still absent because of visa and travel restrictions and when they come back in 2022 they will put additional pressure on the sector.”
(See our further article in this issue on the new joint venture between Canadian CPP Investments and London-based Round Hill Capital to develop PBSA across continental Europe.)
