Student rents in Berlin rocket

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Markets

Students flocking to study in Berlin will have to face an unwelcome truth: rents in the city have rocketed more than in any other German city, up 39% since 2011, according to a study of 160 German cities and student rents between 2011 and 2018, published this month by German housing portals wg-suche.de and ImmobilienScout24.

Rentsin 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.

However, Berlin’s eastern neighbours offer better value for money: students in Magdeburg pay on average just €241 a month for a WG, compared to €230 in Cottbus and €212 in Chemnitz. Moreover, students in Chemnitz can rent a 30sqm apartment for just €264 a month.

Students in WGs or single apartments face the heftiest rent in cities such as Munich, Stuttgart, Frankfurt and Hamburg. 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 fork 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. By comparison, Dortmund is a bargain at €340 for an apartment, or €269 for a room in a shared house.

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.

The majority of students – 40% - plump for a WG in Germany, to keep the costs down. An additional 28% either live at home or with a partner, 23% live in a single apartment and 9% live in student apartment blocks.

‘Our rental analysis shows that the WG model is one of the best value and most popular accommodation options for students,’ said Carsten Wagner, founder of wg-suche.de. ‘However, even here, rents are on the rise and many large, popular university cities have become unaffordable for many students. That’s why we recommend smaller and also East German cities. According to our cost analysis, students in those cities have the budget to look for either a WG or their own apartment,’ he added.

Co-living gaining traction

While student halls of accommodation have long been a fixture on the UK university scene, a new breed of serviced student accommodation is expected to gain traction in Europe. According to a report published by JLL earlier this month, ‘Co-living – the graduation from Student Housing’,students are becoming accustomed to more flexible housing:‘The student accommodation sector has been transformed by a new generation of students who have grown accustomed to higher levels of serviced accommodation than has previously been available,’ said Philip Hillman, international director of student housing EMEA at JLL. ‘After graduation, they are pursuing similar high quality accommodation that provides them with flexibility and consistency, regardless of location.’

In London, home to one of the largest student populations in the world,70% of the 49,000 extra student housing beds over the last 10 years were direct let beds with no university agreement, ‘highlighting the potential scale for this market’, according to Simon Scott, director of residential capital markets investment at JLL.

And where London leads, other cities are sure to follow. According to James Kingdom, associate director, alternatives research, at JLL, ‘co-living has the potential to be a sustainable housing option when there is set to be a further 13 million people living in European cities by 2025’.

‘Where land values are higher or pressures on land use are greatest, then there is an obvious need to increase the number of people that can live in these locations,’ Kingdom said. ‘Modern student housing has a greater emphasis on communal areas, whether that is for dining space, living or leisure use. This is also the standard template for co-living developments. These facilities provide the trade-off for a smaller living space and are features that are unlikely to be present in a house share or self-contained flat. Student housing and co-living clearly have an important role to play.’

International investors move in

Predictably, sharp rise in rents in many university cities in Germany is whetting investors’ appetite. Earlier this month, a private real estate fund managed by global alternative asset investment manager Brookfield Asset Management secured a controlling stake in German student housing developer, International Campus Group. The terms of the transaction remain confidential and the deal is subject to the approval of antitrust merger control. Founder of International Campus, Rolf Engel, will continue to chair the supervisory board and the fund management. Horst Lieder will remain as CEO to guide the expansion of the company.

‘Brookfield’s comprehensive, long-term-oriented commitment shows the great deal of trust placed in the expertise of International Campus and the further growth potential for this segment in Europe,’ said Lieder. ‘We will use the fresh capital to expand and scale our business model in Western and Central Europe, with an emphasis on Germany. International Campus will continue to focus on its core products of apartments for students and young professionals.’

International Campus is currently operating, implementing, or planning a total of about 11,800 apartments in 33 locations in four European countries, according to Lieder, with a view to adding another 20,000 units in the medium-term.

For Brookfield, the deal allowed it to enter Germany’s quickly growing student housing market.

‘There is unmet demand for purpose-built student and young professional accommodation in Germany and Continental Europe,’ said Zach Vaughan, managing partner and European real estate head at Brookfield. ‘Although this sector is relatively nascent, International Campus is a market leader and has the operating, sourcing and development capabilities necessary to build a first-class institutional portfolio. We are excited about this opportunity and look forward to working with International Campus on their ambitious growth plans.’

Brookfield Asset Management is listed on the NYSE, TSX and Euronext and has more than €230b of AUM in 30 countries. In Germany, Brookfield and other partners purchased Potsdamer Platz in Berlin, including 16 buildings, ten streets, and two squares at the end of 2015.