Editor's Choice: Rolling out the red carpet

Two major German insurers increasing their student housing exposure was one of the signs this week that the long-neglected and under-funded niche in Europe is evolving into an investible asset class for return-hungry institutions.

PropertyEU broke the news on Thursday that Germany’s largest public insurer Versicherungskammer Bayern and peer Barmenia Versicherungen backed the enlargement of the first stock-exchange traded student housing bond in Germany.

Deutsche Real Estate Funds (DREF), one of the pioneers of modern student units in Germany, will use the additional €33 mln volume for the acquisition and refurbishment of three residences in Bochum, Essen and Kiel. The original €44 mln bond launched in June was used to fund the modernisation of properties in Berlin, Bremen, Kiel and Stuttgart for the 2015/16 winter semester.

Admittedly, the DREF bond is small beer when compared to the massive funding witnessed almost daily in mainstream real estate asset classes. But that’s an unfair comparison. Student housing in Europe, with the exception of the UK, is still in its infancy - years and some would say light years behind offices and retail.

Most of the student accommodation in ‘mainland Europe’ is either subsidised with public money or sourced on a bed-by-bed and house-by-house basis by students who move away from home. But this is beginning to change.

The significance of the DREF bond is that the demand for an increase came from the institutions themselves. Not so long ago fund managers operating in such an under-developed niche sector sometimes felt they had to resort to begging to raise much-needed capital.

In the current environment institutional investors are seeing lower or even negative returns from their traditional cash cows. New or modernised student housing is an interesting alternative as it offers stable cash flows, generally higher than other property sectors.

Investment class
Institutions will have another chance to tap into the sector’s growth potential in December when Xior Student Housing hopes to list as a real estate investment trust on Euronext Brussels. Assuming the IPO goes ahead, Xior will own 2,000 student rooms across 37 buildings in Belgium and 11 in the Netherlands with a total fair value of €196 mln.

News of both the IPO plan and the expanded bond came a day after the case for investing in student housing was articulated during a conference held in Amsterdam.

Attendance levels at the Class Conference spoke volumes about the rising popularity and economic importance of student housing. The very professional and stylishly run annual gathering of sector organisation The Class of 2020 attracted 460 ‘stakeholders’ compared to 200 last year. Among the attendees were investors, developers, institutional capital providers, student bodies, and university and city representatives from around Europe and beyond.

Avoiding the pitfall of descending into a talking shop for the converted to spout pious aspirations, the Class Conference participants – representing 200,000 student beds across the globe - stayed firmly within the realm of hard facts, coupled with a drive to find real solutions.

More than 850 universities in Europe accommodate 13.6 million students on 170 million m2 of gross floor space. The European Commission aims to have 20% of its students spend some time in other European countries, and the €14.7 bn Erasmus-plus programme is designed to make this a reality for 4 million students by 2020.

Rather than bemoan the huge strain the EU's plans, coupled with students coming in from other regions, put on the creaking, out-dated housing infrastructure, the conference pressed the case that increasing student mobility is an opportunity for everyone.

Subtitled ‘Roll out the red carpet’, speakers emphasised that cities need to train international students and retain graduates to be competitive and to earn desperately needed income. For instance, it is estimated that international students will bring in €500 mln in revenue and at least €100 mln in investment to Amsterdam over the next five years. But if the Dutch capital succeeds in raising its international student population to European averages it could generate €1 bn in receipts and €400 mln in investment.

Already, developer-operators and investors in various European markets have learned that students from mid to upper-income brackets - often from abroad - are a sound, long-term investment. But to really grow, the student housing sector still needs to refine strategies to provide affordable student housing in a world where grants and subsidies may no longer be guaranteed for those coming from lower-income backgrounds.

Roll on the next class.

Cormac Mac Ruairi
PropertyEU