By Sara Seddon Kilbinger, Senior Reporter, REFIRE
Resilience of sector demonstrating counter-cyclical behaviour is wooing investors
Student housing is high on investors’ wish lists in Europe as its resilience and ability to weather a broader downturn are increasingly making it a no-brainer for investors.
The total volume of investment in European student accommodation in the first three quarters of 2022 increased by 130% y-on-y and stands at €11.7 billion, thereby setting a new record, according to the latest report from Savills.
The sharp uptick in investor interest in the sector is primarily due to an increasing number of students, including international students. Savills expects this growth to continue given that the number of young people in Europe (15- 19 years old) is expected to increase by 5.8% by 2027. At the same time, there is a significant undersupply of student accommodation in many European markets. The average supply ratio - the total number of beds divided by the total number of students - currently averages 12.5% in European cities, down from 13% a year earlier. In Germany, it averages 14.2% in the top 30 university cities. The proportion of the population of student age is 14.7% in Cologne and 14.9% in Munich.
International Campus acquires THE FIZZ in Bremen
Last week (21 November), International Campus - an investor, developer and operator of student and urban living in Europe – acquired THE FIZZ, a student housing complex in Bremen. The building has been operated by the group since 2012 and served as pilot project for THE FIZZ brand and comprises 335 apartments over 13,000 square metres. ‘Things are coming full circle for us – the apartment building in Bremen was the first International Campus asset that began operating under the brand THE FIZZ in 2012,’ said Gawain Smart, CEO of International Campus. ‘The acquisition further strengthens our own portfolio and we plan to acquire additional properties, which are currently under our operation.’
Michael Stapf, the CIO of International Campus, added: ‘Student housing has evolved in recent years and we are creating a long-term perspective for International Campus with the new concept. In addition, we are bringing forward some planned maintenance work, among others in the flats, to position the building for the future. Buying the building in Bremen was a natural step for us to take. After all, it checks all the boxes for our houses: It is located in direct proximity to the university and conveniently connected to the downtown via public transport. Our residents are within easy reach of their classrooms and of the city’s leisure and cultural amenities at the same time.’
The University of Bremen has a total enrolment of around 19,000 students (as of the winter semester 2021/2022) while also employing around 3,600 campus staff (as of 2020). With its population of around 560,000 residents, Bremen is one of the biggest cities in northern Germany, second only to Hamburg. It has a vibrant cultural scene as well as a large number of bars, pubs and restaurants. In addition, the city is home to two UNESCO World Cultural Heritage items: Bremen town hall and the Roland statue.
Deal volume outstripping 5-year average
In the first half of the year, around €760 million of deals were transacted, an increase of 11% y-on-y, outstripping the average over the past five and a half years of €620 million, according to CBRE. In the second quarter alone, €410 million of deals took place, marking the strongest quarter since 2017: ‘In the German investment market for student housing and micro apartments, we have not yet been able to observe any restraint on the part of investors due to the geopolitical uncertainties,’ said Sebastian Schütte, senior director Residential Investment at CBRE. He is now forecasting up to €1.5 billion in deals by the year-end, in line with 2017.
Interestingly, forward funded deals have increased by 10% y-on-y to 80%, driven largely by
increased ESG requirements for operators and owners. In addition, the number of students continues to rise, particularly from abroad, given that Germany’s university education is still free, unlike in the UK or the US. For the last winter semester, 2.9 million students enrolled at a German university, up from 1.94 million in 2002/2003, according to Statista.
Around 14,500 beds will be added to student accommodation by the end of the year in Europe, according to Savills. However, this will not be enough to meet additional demand resulting from the rising number of students. On average, public operators account for 63% of total student accommodation in Europe, which is often outdated and in poorer condition compared to newer private stock.
Student housing in Top 5 investment targets of investors with more than €500 bn of AUM
The imbalance between supply and demand is increasingly attracting interested parties, as evidenced most recently by the results of a Savills survey: According to the survey of real estate investors with more than €500 billion in total assets under management in Europe and the Middle East, student housing projects are among the Top 5 investment targets over the next twelve months.
‘Project development acquisitions have steadily increased as a proportion of total European student housing investment over the last five years and are expected to account for around 30% by the end of the year,’ said Lydia Brissy, director European Research at Savills.
The average prime yield in Europe in this segment now stands at 4.15%, ranging from 3.5% in Copenhagen to 6% in Seville, according to Savills: ‘The student housing market is behaving counter-cyclically and currently represents a good opportunity for investors to balance their portfolios during economic downturns,’ said Marcus Roberts, head of Europe, Operational Capital Markets at Savills. ‘The positive sentiment in the sector demonstrates investor confidence in the resilience of the asset class.’
In Germany, although the number of new entrants has fallen recently, it is still at a very high level. ‘We are currently seeing the market in Germany slowly transitioning into a mature phase after years of boom,’ noted Florian Gust, director of Corporate Finance - Valuation at Savills Germany. ‘In view of the continuing high student numbers, the ongoing shortage of supply on the housing market, and a high proportion of student-age residents in German cities such as Cologne and Munich, we still expect good investment opportunities for investors. However, the quality and location of residential developments will play an even greater role than before.’
Students feeling the pinch as rents soars
Students themselves are unlikely to see it that way, given the sharp increase in rents. A recent study carried out by the Moses Mendelssohn Institut and the real estate portal WG-gesucht.de found that the cost of a room in a shared flat – or WG, as they are known in Germany - has risen by an average of €44 to €435 per month, a rise of 11.4% from last year's €391. A WG room is typically the cheapest form of accommodation for students and normally costs up to €200 less than a micro-apartment or anything else on the open market.
Rents for regular apartments are rising at a similar rate. In 51 of the 67 German university towns recently surveyed by property portal Immowelt.de, students are finding it increasing difficult to find affordable accommodation. Rents have risen in 51 of the 67 cities surveyed over the past year and in 28 cities, the increase outstripped the inflation rate of 6.8% in the same period. Students in Munich continue to be hit the hardest, forking out around €840 a month, up from €760 a year ago, a rise of 11%, according to Immowelt. That compares with around €570 in Berlin. The biggest increase was in neighbouring Potsdam, with average rents up 16% to €440. In Frankfurt, rents have increased by 8% to €540 euros; in Hamburg, they’re up by 9% to €500. In Cologne, rents for apartments have only risen by a modest 2% over the past year.
