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The boom in investment into the student and micro-housing market in German shows no sign of any let-up, with transaction volume for the first half of the year up a whopping 224% to more than €1.6bn, shows the latest study by property brokers CBRE.
More than 8,800 apartments in the category (up 110%) with a total lettable space of 277,000 sqm (+118%) changed hands in the period. The full year figures are certain to be the highest ever, after the record-breaking first half, despite the first-half figures being somewhat skewed by a huge forward deal involving Corestate for the Bavarian pension fund BVK.
Konstantin Lüttger, head of residential investment at CBRE Deutschland, said that even without such oversize deals, “The market for student accommodation and micro-apartments has grown enormously… Investors are persuaded by the professionalism in the market and are drawn to the attractive yield advantage compared to classical residential investments”. The average top yields are currently 3.75%, with CBRE detecting significant yield compression of 50 bps in very good locations.
Project developments have taken on much more importance now given the shortage of available assets in the relatively new sector.
A separate study by Union Investment and researcher BulwienGesa analyses the segment in the most important markets of Germany, France, UK and the Netherlands.
Henrik von Bothmer at Union Investment Real Estate says, “In these already well-established markets for micro-living, a high level of activity by private investors, measurable by the volume of projected apartment units, is meeting with a sector characterized by a low level of private supply.”
Across Europe, student housing, once a niche asset class, now forms a key component of real estate investor allocations. Increasing growing global demand for higher education, which is being driven by shifting demographics and wealth distribution, has propelled investors to seek out student accommodation investment across the risk spectrum and multiple geographies.
Germany leads the pack as the largest student population in Europe, with student numbers that have grown substantially relative to other countries over the past 10 years. The student population has actually doubled in Germany since 2008, creating huge extra demand for suitable housing. The stable investment environment has encouraged a large amount of international capital looking to invest in the sector, with Brookfield, GIC, Allianz, BVK and Harrison Street all entering the market over the past 18 months.
‘We now live in a world where the student population is more internationally mobile, more flexible and ultimately has more choice about what and how to study,’ said Paddy Allen, a partner at C&W. ‘Due to the evolving nature of the sector across Europe and increasing capital allocation, investors must become more creative in how they invest to gain or increase exposure. The result is that customer demand for student accommodation shows no signs of abating any time soon.’
Investors have been particularly favouring markets where rents have soared in the past five years. In Berlin, for example, they have risen more steeply than in any other German city, up 39% since 2011, according to a recent study of 160 German cities and student rents between 2011 and 2018 by German housing portals wg-suche.de and ImmobilienScout24.
Rents in Berlin typically cost around €363 per month for a room in a shared house (WG) or €438 for a 30 sqm apartment, a price hike of 6% y-o-y, according to the study. A student looking for a single apartment or large room in a shared house of at least 25 sqm in Munich, which is also close to the university, will need to be prepared to shell out around €785 a month, including utilities, for an apartment or €616 for a room in a shared house, an increase of 6% y-o-y and up 35% since 2011. Stuttgart is the second most expensive city for students, with WG rooms costing €485 per month on average, compared to €438 in Freiburg, €425 in Ingolstadt, €410 in Hamburg and €388 in Cologne.
Just this week Commerz Real entered the fray by launching a fresh European fund for student and micro-apartments. “Commerz Real Institutional Smart Living Europe Fund”, structured as an open-ended special AIF (alternative investment fund), will be developed as a diversified portfolio of ten to 15 residential complexes in university cities and towns throughout Europe with a total volume of about €500 million euros. The fund is raising €250m from professional and semi-professional investors, and is targeting a BVI return of 5% per annum.
According to Johannes Anschott, Commerz Real board member handling institutional business, “Increasing numbers of students, the flexibilisation of the labour market and the rise in the number of single households are driving demand for micro-apartments across Europe.” For pinpointing asset for the new fund, he said, “Suitable prerequisites are excellent links to local and long-distance public transport, short distances to university campuses, urban life and city centres, as well as proximity to outlets for everyday commodities.”
The new Commerz Real fund is the second special fund to be issued by Commerz Real in the student and micro-apartment segment. The predecessor product, Commerz Real Institutional Smart Living Fund, which was launched in 2016, focused on Germany and has since been placed with equity capital of nearly €150m. “With the expansion to Europe we intend to offer our German professional and semi-professional investors the possibility to profit from the European outlook for this asset class, and in doing so to utilise our specialist know-how, where we see considerable potential for an independent product class within our institutional portfolio”, said Anschott
