growing demand

Europe

future

educationforeign

housing

domestic students

investment

anti-cyclical

analyses

growing demand

Investing in European Student Housing Summary

The challenge for institutional investors of finding

attractive investment opportunities has increased

significantly in recent years as the successive financial,

sovereign debt and economic crises have resulted in

increased share price fluctuations, record low interest

rates and rising vacancy rates in commercial real estate,

the latter investment class suffering additionally

from the growing trends of working and shopping

from home.

In this climate, growing interest can be observed in

the United Kingdom, but also in continental Europe,

in a so far largely neglected niche of the real estate

market: student housing.

Looking back on its own positive experiences to date

with investments in this segment, Bouwfonds REIM

decided to provide its clients with an overview of

this possibly unfamiliar asset class – where selected

investment based on solid research of opportunities

and risks can provide a valuable addition to the real

estate component in investment portfolios.

The report, entitled Investing in European Student

Housing, focuses on the three core markets of

Bouw-fonds REIM’s European Residential Fund

(France, Germany and the Netherlands) as well as

the United Kingdom, the only country in Europe

with a liquid student housing investment market.

Key findings

The report concludes that student housing has

attractive general investment characteristics

compared with other segments of the real estate

market available to investors:

• Attractiveyields–Onaverage,yieldsfrom

student housing appear to exceed yields from

regular residential housing, even when taking

into account the relatively management-intensive

nature of student housing. These higher yields

are not a temporary phenomenon and cannot

be fully accounted for by the lower quality of

the cash flow or the higher average risk profile,

either in the United Kingdom or in the conti-

nental European countries – making the sector

in general interesting to invest in.

• Sizablemarket–Withthetotalnumberof

students requiring accommodation in the

countries reviewed approaching 7 million, the

sizeofthe‘existing’professionalinvestment

market is cautiously estimated at around € 20

billion, with considerable scope for expansion

over time, given that professional investors

account for only 8% of the total market in the

United Kingdom and far less (perhaps as little

as 2%) in the other three markets reviewed.

• Stabledemandoutlook,unlikemanyotherreal

estateniches–Aneasingofdomesticstudent

Investing in European Student Housing

Summary Investing in European Student Housing2

numbers in many European countries, due to

demographic factors and rising tuition fees, will

largely be balanced by a growing infl ux of students

from outside Europe who are attracted to its high

average academic standards, relatively affordable

programmes, many Master’s degree programmes

taught in English, and attractive historical and cul-

tural environment. If we combine our outlook for

domestic and foreign students, we estimate that

the total number of students in Germany, France,

the Netherlands and the United Kingdom will

increase by 3.3% between 2011 and 2025.

• Anti-cyclicalnature–Whileyieldsfromstocks,

bonds and commercial real estate typically suffer

during an economic downturn, enrolment in

higher education tends to be resilient or even

increases when the economy is weak because

of poor prospects in the job market.

• Favourableriskprofile–Leasesarerelatively

short but default rates are low, as students tend

to be reliable tenants owing to the often diverse

nature of their income, backing by parents and

their ability to economise on non-essentials in

order to pay the rent.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2000 2005 2010 2015 2020 2025

Germany

France

United Kingdom

the Netherlands

Total

Figure 1: Outlook in terms of total number of students

Source: Bouwfonds REIM Research, 2012

Student housing is one of the few segments of the

real estate market expected to see stable demand.

Summary Investing in European Student Housing 3

• Sufficientliquidity–Alsoresultingfromalternative

exit strategies, given that most student buildings

are located in strong residential markets and/or

capital cities, and are already tailored for alternative

use, taking into account the growing trend toward

single-person households.

Student housing – stable demand outlook

The report examines the effects of various funda-

mental factors on the demand side of the market for

student housing, such as overall demographic trends,

the interplay between higher education and the job

market, and the effects of governments’ education

and educational funding policies. It also looks at the

effects of multilateral developments such as the

‘Bolognaprocess’,whichaimstomakediplomas

mutually recognised across most of Europe and,

importantly, to raise the proportion of EU students

learning in other EU countries from 2% to 20% by 2020.

Overall,themarketforstudenthousinginthefour

countries reviewed is buttressed by a generally

shared conviction that knowledge is the key to

individual and collective prosperity, particularly in

Europe, where economic growth increasingly depends

on productivity growth and, hence, shifting economic

activity to occupations with higher added value –

a shift which crucially depends on higher education.

Moreover, higher education increasingly means

international higher education, which is viewed by

prospective employers as a token of self-reliance,

entrepreneurship and aptitude to work in a global

economy. This trend is reflected in the dramatic

increase in the number of Master’s Programmes

taught in English in non-English-speaking countries

acrossEurope,notablyinNorthernandWestern

European countries such as the Netherlands, Germany

and Sweden. This development suggests continental

Europe is in the process of building a globally competi-

tive Europe-wide education market, which is likely to

have a beneficial effect on the international demand

for higher education in the four markets reviewed.

In the four European countries under review, domestic

enrolment will decrease slightly (except in France) up

to 2025, but all of these countries can expect conti-

nued growth in the influx of foreign students during

this period – also, increasingly, from outside Europe.

Specifically, if we combine our outlook for domestic

and foreign students, we estimate that the total

number of students in Germany, France, the Nether-

lands and the United Kingdom will increase by 3.3%

between 2011 and 2025, or 0.2% annually. This makes

student housing one of the very few real estate

niches that will benefit from stable demand in the

coming decades.

Figure 2: Relation between education and prosperity

Sources: Oxford Economics and Unesco, 2012

India Ghana

Mexico

Argentina

Poland

Spain United Kingdom

New Zealand

France

the Netherlands

Japan

United States

Sweden

Australia

Switzerland

Norway

R = 0.73279

10

12

14

16

18

20

22

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000

SCH

OO

L LI

FE E

XPE

CTA

NC

Y (

YEA

RS)

GDP PER CAPITA IN 2012 ($)

4 Summary Investing in European Student Housing

Student housing – shortages expected to persist

The supply side of the market for student housing is

a local issue, as there are major differences between

the various university cities in terms of attractiveness,

future building programmes and the availability

of alternative lodging for students. The operating

models and ownership structures also differ and may

notalwaysbestructuredinanefficientway.Afew

general trends can, however, be identifi ed: many

European university cities have huge shortages of

high-quality and affordable purpose-built student

housing; many top university cities have long waiting

lists for suitable housing; considerable numbers of

domestic students continue to live with their parents

but would rather live on their own; the gap between

demand and supply is particularly wide in the larger

cities that are home to top universities – making for

a negligible risk of vacancies in student housing.

Whilenewstudenthousingsupplyisexpectedtoenter

the market in the coming years, mainly developed by

private and professional investment companies, the

shortage is likely to persist, at least for the next few

years. This is also because fi nancial and other con-

siderations will increasingly induce universities and

social housing companies to pull out of this market,

while most developers still struggle with debt and

cost management, which limits their production.

Student housing is expected to attract growing

interest from professional investors and operators

The report notes that the investment market for

student housing is not yet transparently structured

– student housing being widely spread among

many different non-profi t, private and professional

providers. By and large, the student housing mar-

ket is dominated by the private sector with a total

shareofapproximately85%.Ofthefourcountries

reviewed, only the United Kingdom can be said to

have a professional investment market for student

housing: about 8% of all student accommodation in

the United Kingdom is in the hands of institutional

investors and operators.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2000 2005 2008 2009 2010

Africa

Asia

Europe

North America

Latin America & The Caribbean

Oceania

Other

Figure 3: Number of foreign students broken down by world region destinations

Source: OECD, 2012

5Summary Investing in European Student Housing

Combining the ownership structure with the various

types of accommodation and operating models

results in the most common recognisable clusters or

product-market combinations in student housing:

on-campus basic rooms offered by public companies

(mainly United Kingdom), luxury furnished studios

operated as a student hotel, and privately owned

in-house student rooms or shared apartments (see

figure4:ProductOverview).Asaresult,thereturns

(and required yields) span a wide range – or at least

they should, to properly refl ect the risk return profi le

depending not only on location but also product

segment, although this is not always the case.

New specialised student housing operators are

expected to enter the European market, and existing

student housing operators from the United Kingdom

willprobablyalsoexpandoverseas.Webelievethat

in time, this will support professionalism in the stu-

dent housing investment market.

The‘hotel’operatingmodel,examplesofwhichhave

only recently started to appear in continental Europe,

is likely to become more common in future owing to

the increasing interest in student housing shown by

institutional investors.

Prime investment targets are capital cities and

selected ‘secondary’ university towns

The report concludes with a top-down analysis of the

‘investableuniverse’ofEuropeanstudenthousing.

Whilethestockofaccommodationavailableto

students varies from city to city, there is a noticeable

overall shortage, both quantitative and qualitative,

in the four countries researched (France, Germany,

the Netherlands and the United Kingdom).

Based on analyses covering the next fi ve years (2012-

2017) for three key attractiveness criteria – regional

residential attractiveness, regional European university

rating,andstudentmarketliquidity(size)–amap

wascreatedshowingthe‘investableuniverse’,the

attractive regions for investing in student housing.

The ranking provided by this map may contrast with

rankings offered in other studies, because the meth-

odology applied in this study values a strong local

residential market to increase alternative exit strate-

gies for investors. It shows that United Kingdom and

Dutch regions are generally attractive due to the

presence of both top universities and a absolute large

student population, while French and German regions

are mainly attractive because of their relatively large

student populations. The university rankings of the

latter two countries are lower because they currently

offer fewer programmes taught in English.

Allcapitalcitiesoffergoodinvestmentopportunities

in student housing, mainly because they have a large

student population and an attractive residential

investment market. Satellite cities of the capitals of

theUnitedKingdom(Cambridge,Oxford)andFrance

(Evry) are also attractive. Some cities, such as

Manchester and Munich, not only host a top university

but also have a large student population and

therefore offering also interesting investment

opportunities.

Figure 4: Product Overview

Source: Bouwfonds REIM , 2012

PRIVATEINVESTORS,LANDLORDSIn house-rooms,

shared appartments

PROFESSIONALINVESTORS

Studio’s, Student hotels

UNIVERSITIES / SOCIALHOUSING

Student rooms, on-campus

HIGH RENT

LOWRENT

PROPERTY SERVICES

FUNCTIONAL EXPERIENCE

6 Summary Investing in European Student Housing

f

ff

f

f

fff

fff f

f

f

f

f

fffff

f

f

fff

f

f

ff

fffff

f

f

f

ff

f f

f f

ff

f

f f

f

ff

f f

f

ff

f

ff

f

f

f

f

f

f

ffff

f

fff f

ff

ff

f

Figure 5: Attractiveness for

investments in student housing

Source: Bouwfonds REIM Research, 2012

7Summary Investing in European Student Housing

Colophon

Drawnupby BouwfondsREIMResearch,April2013

Dimf Ghijsels-Kerkhoff, Head of Research

RoelfkeBuitink-vandePol,ResearchAnalyst

JeroenBeimer,SeniorResearchAnalyst

BenjaminRüther,ResearchAnalyst

Published by Bouwfonds REIM

De Beek 18

P.O.Box15

3780DAHOEVELAKEN

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registeredoffice:DeBeek18,NL-3871MSHoevelaken,P.O.Box15,NL-3870DAHoevelaken,theNetherlands.

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8 Summary Investing in European Student Housing

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