Editor's Choice: Ten years down the track

‘International students are the future,’ Samuel Vetrak, CEO of StudentMarketing, told a recent PropertyEU Investment Briefing in London. ‘The numbers of domestic students are decreasing, due to demographic trends, but that decline is more than compensated by the increase in foreign students targeting continental Europe,’ he told a packed room at the London offices of law firm Nabarro.

By 2020 there will be an additional 335,000 international university students in continental Europe, plus an additional 310,000 short-term exchange students on Erasmus-type courses moving to over 40 competing destinations, research from StudentMarketing shows.

Vetrak claims that investments of €2 bn a year are needed to attract these students as housing is a necessity and an integral part of the value proposition. Moreover, demand already far exceeds supply.

Dedicated platforms
In Europe the UK has led the way in student housing and it remains the largest, most mature and most liquid market with institutional investors like GIC, Singapore’s $100 bn (€89 bn) sovereign wealth fund, and Canadian pension giant CPPIB, forking out significant sums to bolster local platforms Unite and Liberty Living. A week ago, Unite teamed up again with the Singaporeans to acquire a major residential campus in Birmingham for £227 mln (€266 mln).

Birmingham has the second-largest student population in the UK, with over 70,000 students resident in the city during term time. Besides Aston University, the city is home to two other leading UK universities: the University of Birmingham and Birmingham City University. 

Just this week, US developer/investor Hines announced it is accelerating its growth into the student accommodation sector in the UK and Ireland with the launch of a new operating platform. The announcement coincides with the acquisition of one asset and two further developments, comprising more than 1,000 bed spaces.

Hines has now expanded its student accommodation portfolio to 12 developments with a combined GDV (Gross Development Value) of over £500 million since entering the market less than a year ago.

While the UK boasts the most developed student housing sector in Europe and the first listed companies in this sector, the market has now reached a plateau, said Vetrak. Foreign student numbers are decreasing, partly due to tougher visa requirements and partly to uncertainty over Brexit.

Mainland Europe is catching up
Continental Europe, by contrast, is growing fast: Germany in particular, where universities have made a concerted effort to attract foreign students, is gaining popularity, as are France and the Netherlands.

In recent years pioneers such as International Campus have been developing the German market and institutional investors are now giving the sector their stamp of approval as well. In September last year IC sold two of its The Fizz-branded student accommodation schemes (Frankfurt scheme pictured) to German life insurer Württembergische Lebensversicherung and it has set up a dedicated investment vehicle together with German insurer Allianz and an unnamed European investor. 

IC is also targeting the Benelux as a growth area. Its Dutch business recently opened two properties with over 350 beds each in Amsterdam. Meanwhile Amsterdam-based investment manager Bouwfonds, part of Dutch bank Rabo, is eyeing a second pan-European student housing fund with a volume of €400 mln. 

France is catching up too. Earlier this month Chicago-based investor Harrison Street Real Estate Capital and HPC Group, the French student housing developer and operator, announced plans to develop a portfolio of branded, high-end student apartment blocks in major university cities throughout France.

Harrison Street is one of the largest owners of student housing in the US and France is the third European market that it has entered into since opening its London office in 2015 and raising a dedicated European Student Accommodation Property fund. Aside from the UK, Harrison Street Real Estate Capital is also active in Ireland where it plans to invest €250 mln in student housing in the country over the five years together with its local partner GSA. Altogether the US company now has a European student housing portfolio of over 4,500 beds in ownership or under construction.

Investment has exploded in past 10 years
The development of dedicated student housing platforms and fund vehicles mirrors investment in the sector. Just 10 years ago, student housing attracted less than a €1 bn – or €713 mln – according to data from Real Capital Analytics (RCA). Following the outbreak of the crisis, that figure plunged to just €237 mln in 2009, but since then the trajectory has been upward, reaching a peak of €8.4 bn in 2915. Overall volume fell in 2016, but at around €6 bn, this is still eight times the figure it was 10 years ago.

Whether that rate of acceleration will continue in the next 10 years remains to be seen, but there is clearly enormous potential in mainland Europe. According to Vetrak, Southern Europe also presents interesting opportunities for investors because the gap between supply and demand there is particularly wide. Three Italian cities – Rome, Milan and Florence - are in the top-three list of most under-supplied cities in Europe, with just 2-3% of beds needed being supplied by the market. Lisbon in Portugal is at 4%.

Non-listed real estate investors are definitely wising up to the opportunities, according to sector organisation INREV. Its latest Investor Intentions survey shows that student housing moved up a notch to 5^th place with 34.5% of investors expecting to invest in the sector. Fund of fund managers are particularly enthusiastic, with a score of 63%.

Asia is also set to become a growing source with 1 in 5 investors from this region reporting they are interested in student housing in Europe, according to the INREV survey.

All in all, it would seem that student housing in Europe is now more than making the grade.

Judi Seebus
Editor in Chief