Since REFIRE started reporting on the market for German student housing more than ten years ago, much has changed. In Germany’s thirty largest university cities there are more students than ever before, and there have never been so many student beds on offer as there are now.
Property adviser Savills has just produced a useful study on the student housing market - past, present – and likely, future, along with estimates as to how big is the investable stock and which cities could support the most investment.
The supply of private student accommodation in Germany has gone in only one direction over the last few years – upwards. Since 2010 Savills estimates that private suppliers have added more than 45,000 beds in the top thirty university cities (by student numbers) since 2010. By mid-2019 private providers were offering 51,500 beds, more than a quarter of all student accommodation.
According to Matti Schenk, senior consultant at Savills, “The level of new private building reached new levels in 2017 and 2018, with about 14,600 new beds coming on to the market in those two years. For 2020 there are a further 8,700 completions due. However, after that the numbers are falling off rapidly, so we’re expecting a market phase of slower growth.”
In some cities the growth is only really starting. Compared to existing supply, the biggest growth will occur in Dortmund, Düsseldorf and Hannover, with Dortmund adding a further 1,550 beds by end-2022 – a nine-fold increase in the amount of private beds on offer.
Michael Gail, director and team leader for investment at Savills in Munich, says: “The high level of new building activity in cities like Dortmund and Hanover shows that private developers are focusing more on cities outside the Big 7. Still, with such cities having sometimes more than 50,000 students, these are still significant players on the German university landscape.”
Most new private student accommodation fell in equal measures for an all in rent price of below €500 and those of €500 and above. 26% of all private accommodation costs more than €600 per month. For beds currently in the supply pipeline, Savills estimates that more than two thirds will have all-in rents of more than €500 per month. Only 19% of the planned beds will cost €450 per month or less, they estimate. With construction costs rising, it’s unlikely that any new supply will cost less than this.
Savills has estimated how much of this supply is investable for professional investors. According to Michael Gail, “We estimate the market value of the existing stock and that under construction in the top thirty cities at about €8.7bn, with existing stock put at about €5.9bn. Of this about €2.1bn is propbably not accessible for professional investors, as its partly privately owned.
There is about €3.6bn worth of existing assets that would be investable, of which about 57% are properties with an existing operator. Matti Schenk of Savills says, “The volume per unit at operator-run properties is 41% higher on average than by properties without an operator. Operators tend to concentrate on the biggest and most expensive universities, while at the same time their properties are as a rule in better locations.” This is the case with 45% of the operator-run properties, whereas only 31% of the non-operator run properties would be described as being in ‘attractive’ locations.
The volume of properties either being currently built or in the planning stage is about €2.8bn, and most of these can be assumed to be investable by professionals. Hence the overall relevant investable market for investors can be put at €6.4bn.
The overall trend for student numbers is still positive from the perspective of investors, with demand currently higher than ever. In the winter semester of 2018/2019 there were 1.6m students studying in the top-thirty university cities, 0.8% more than in the previous year. However, according to Schenk, recent student growth numbers have slowed a lot compared to the previous five years. The growth meantime has come almost exclusively from foreign students.”
However, average availability has grown only slightly despite slower growth in student numbers and increasing supply. Taking all forms of student accommodation into account, (private, university-owned, municipal, others), the average availability is 11.9%, and at the end of the current pipeline of new supply this should rise to 14.0%. In some cities it’s much higher, with in the medium term Heidelberg (23%), Mainz and Stuttgart (21%) leading the field. At the bottom end come Kassel (6%), along with Düsseldorf and Cologne (8%).
Schenk says, “Even at the price level of €450 all-in rent the availability quota on average in the top-thirty cities is likely to be about 11%. Although we expect at this price level the quota to rise to about 20% in Leipzig, Mainz and Dresden.
In 14 cities, Savills expects the availability quota (Versorgungsquote) at the lower €450 all-in rent level to be still less than 10% at the end of the current pipeline in cities such as Bonn, Düsseldorf, Cologne, Münster and Stuttgart. “The gap between demand and supply at that price point would seem to be very high in these cities,” says Schenk.
Meanwhile, on the deal front, in a recent notable deal this month, Commerz Real KVG bought an existing student residence with 244 units from private business university Frankfurt School of Finance & Management. It will take over the 12,3000 sqm property on Adickesallee in Frankfurt’s Nordend district in January 2020, but will then demolish it and replace it with 1,133 furnished serviced and student apartments on 39,000 sqm.
The deal, along with project developer iLive, is the largest construction project of its kind in Germany, with an investment volume of about €226.5m. It will subsequently be absorbed in to two real estate funds “Commerz Real Institutional Smart Living Fund” and “Commerz Real Smart Living Europe Fund”. Commerz Real has already worked together with iLive on two similar, smaller, projects in Darmstadt and Essen.
Frankfurt has 66,000 students, who make up about 9% of the city’s population. The vacancy rate on the Frankfurt apartment market is less than 0.5%.
Johannes Anschott, member of Commerz Real’s board, said: “With the new development we can support the city and Frankfurt School of Finance & Management in providing as much housing as possible to meet people’s needs.” He said his open-ended special AIF (alternative investment fund) “Commerz Real Institutional Smart Living Europe Fund” is to develop a diversified portfolio of ten to 15 residential complexes in European university towns with a total volume of approx. 500 million euros. This will mean raising €250 million from professional and semi-professional investors, and tartgeting a BVI return of 4.5% per annum.
“Increasing numbers of students, the flexibilisation of the labour market and the rise in the number of single households are driving demand for such apartments throughout Europe,” said Anschott. Further transactions are already planned for the coming weeks and months, he said.