Student Housing and Co-Living year end round-up 2019 and outlook 2020 – UK and Europe

COMPARISON OF STUDENT POPULATIONS ACROSS EUROPE

OVERALL STUDENT POPULATION

COMPARISON OF STUDENT POPULATIONS ACROSS EUROPE
COMPARISON OF STUDENT POPULATIONS ACROSS EUROPE

INTERNATIONAL STUDENTS AS A PERCENTAGE OF OVERALL STUDENT POOL

Chart depicting percentage of international students

BLENDED LIVING

Whilst the UK has thus far been a little slower in combining Student and Co-living housing, mainland Europe seems to have adopted the concept more readily.  In centres such as Berlin (also a Co-working hotspot), seamless transition from the “college days” living that former students are familiar with, to adopting shared facilities and  modestly-sized personal spaces in city centres, is an increasingly popular lifestyle choice.  Young professionals, many digitally nomadic, are rejecting longer-term suburban tenancies for flexible, shorter-term Co-living rooms where they will rub shoulders with under-graduates, new graduates and more mature working people.

For many, this way of life suits their more experiential attitude to lifestyle where material acquisitions are spurned in favour of social life, convenience and utility.  In this way, whilst this report focuses upon students, market movers are very much aware that their target demographic expands beyond the typical 18 – 21 under-grads.

AFFORDABILITY

The deeper pockets of international students are often the target of Student Housing providers and they will fashion their propositions upon high-end, exclusive developments offering luxury, convenience and proximity to social, work and education facilities.  However, domestic students are also often choosing these high-quality rooms and are equally prepared to pay “top dollar” for the right residence.

Less-affluent students (and less-well-paid young professionals and essential workers), could find these glamorous dwellings beyond their reach and in some ways, the expansion in PBSH has left them behind.  That is not necessarily the concern or responsibility of investors and high-end providers.  No-one criticises Mercedes or BMW for offering expensive motor cars, for example, but it can be an issue for universities and student welfare bodies seeking to ensure every under-graduate gets the best university experience possible.

Design and planning provisions play a large part in building and running costs – and this can contribute to higher rents.  Social and community space are two examples where planning requirements can add significantly to construction costs.

Whilst many privately-owned upscale PBSH schemes are certainly targeted at more affluent tenants, many are better value than the equivalent offerings provided by the universities themselves, and the accusations of profiteering levelled at the sector are often misguided.

Many PBSH providers and operators offer more moderately-priced rooms, and it must also be said that the thousands of extra rooms that are being provided to the well-heeled consumers will free-up other beds for the less affluent.  It also incidentally means many former student houses are also becoming available for families who previously were being pushed out of some town centres by student demand.

The whole question of affordable higher education is one being grappled with by many governments – and the cost of housing will always be part of the discussion as much as other costs such as tuition and university funding across the board.  Governments, universities and Private Rented Sector providers and investors, would be advised to look at the wider questions of affordability if the aims of inclusive and beneficial higher education are to be realised.

INDIVIDUAL COUNTRY MARKETS

UNITED KINGDOM - Across several markets, 2019 saw continuing activity in Purpose-built Student Housing (PBSH) with the UK continuing to attract investors happy to sacrifice yield for their perception of quality.

Who said the UK was over-saturated and holding little interest for investors?  Unite’s acquisition of Liberty Living for £1.1billion is a good indication that it’s not.

Generally speaking, the UK continues to be a popular destination for international students, especially from China with some reports that between 45% and 60% of foreign students are Chinese.  This over reliance on these students, though, is a cause for concern and efforts are under way to increase diversification.

Chart showing UK country numbers

Meanwhile, the growing middle classes and rising incomes in China allows them to comfortably afford the high-quality accommodation that is increasingly provided in Britain.  Although there is increased competition from other English-speaking countries such as Australia and Canada plus the on-going uncertainty surrounding Brexit, the UK’s appeal is still strong.  The Government’s relaunch of a 2-year post-study work visa for foreign students could well boost international numbers further, while the Brexit issue is at least a little more certain following the Election result. Concerns of a possible No-Deal Exit still remain though, following Prime Minister Johnson’s push to enshrine the end of transition firmly to 31 December 2020.  However, all that said, its prestige universities, stable political system and weak currency, all contribute to keeping it firmly in favour.

More on this from Studivest can be found here.

GERMANY – In recent years, Germany has become one of the World’s most popular study destinations.  With popularity comes the obvious issue of rising costs as increasing demand pushes up the price per square metre of living space.  West Germany is more expensive than the East, apart from Berlin.  Konstanz, in the South West, is reported as the most expensive at an average of €20.12 per sq metre, Munich is second at €20.05, Hamburg €19.27 with the capital at €16.53.

Availability is a constant problem in the country, just as it is with other markets.  Despite growing activity in new development, the hunt for suitable, affordable accommodation is still a challenge with many new students underestimating the true costs of housing and studying, in general.

Focusing on Berlin, its population of a little over 3.64million are very much renters.  Some 85% of the capital’s inhabitants live in rented properties; the city’s housing stock is just under 1.95million units.

chart depicting Germany country numbers

In the intensifying global competition amongst cities vying for top spot as the best destination for international students, a number of criteria could be chosen as being key to a selection of where to study.  Based upon student experience, affordability, city life, social inclusivity, urban environment and connectivity, the Student Housing think tank, The Class of 2020 recently proposed Berlin as firm contender for top spot.  Its affordability, however, has been affected by its overall popularity and resultant cost increases.

However, with the city launching new and innovative development and planning projects, Berlin is certainly an attractive option. More opportunistic options could be found in eastern cities such as Dresden and Leipzig so investors with a passion for yield may look in that direction.

ITALY – Of the major European economies, Italy probably has the most pronounced North-South divide. That said, this may echo the East-West divide noted above in Germany in some respects such as cost per square metre of living space, but in Italy, it is more to do with the very different industries and levels of prosperity that exist in the two regions.

chart depicting Italy's country numbers

The North with its younger city populations found in Rome, Milan and Firenze (Florence) are highlighting the evolution of Student Housing, Co-living and Co-working.  The South with its reliance upon agriculture and manufacturing, is highlighting the regional divide which some are commenting is growing.

Investors are focusing upon the North with increased PBSH, Co-living and Co-working development activity in the above-named cities. Greater work and superior housing opportunities in the North are drawing in a younger demographic and, alongside that, investment capital.

SPAIN – Topping the rankings as the favoured destination for Erasmus* students, Spain is seeing increased PBSH development activity in Madrid and Barcelona, its two largest higher education centres. Provincial locations such as Granada, Seville and Valencia however are also attracting inward investment.

JLL recently estimated total bed space needs for the upcoming academic year at 473,254 while available beds languish around 93,000.  A significant shortfall echoed in most countries across the Continent.

chart depicting Spain's country numbers

Investment is still focused mainly around the larger centres but strong moves to provide Blended Living are very much part of this expansion. Madrid’s favourable planning policies provide an advantage for developers wishing to build in the city while its overall provision rate stands at 18%.

PORTUGAL – Spain’s smaller Iberian neighbour has become a popular destination for Erasmus+ students attracted by its warm climate, good quality of life alongside high reputation universities.  It has a low provision rate for PBSH at 3 – 6%, providing considerable scope for new development.

chart depicting Portugal's country numbers

Strong demand continues to fuel a growing PBSH sector focusing on Lisbon, the nation’s capital, and its second city Porto. Portuguese-speaking students from Brazil and Angola are the most common source of international students.

POLAND - Regarded by many as Central and Eastern Europe’s economic powerhouse, Poland is on the receiving end of growing interest and investment. With its higher education heritage, scientific, arts and academic alumni including some of the World’s best-known figures (think Marie Curie, Copernicus, Chopin), Poland is no remote educational backwater.

Investors have already been attracted to its offices and logistics real estate opportunities with Warsaw business premises become significantly hot property in the past few years.  However, as yields begin to compress, alternatives such as PBSH and its blended stablemates will come into sharper focus.

There is growing activity from external investor/operators and the opportunity to swiftly build scale in the country is very real.  Low national and local provision rates with competing university-supplied dorms of inferior quality, key centres such as Warsaw, Wroclaw, Krakow and Poznan offer attractive options.

Institutional activity is currently low, but liquidity is beginning to move as completed developments are sold by their current owners.  Blended Living opportunities are extensive as Poland has become an out-sourcing and IT hub – young professionals and students alike are increasingly vying for the available modern-standard beds.  Demand from these demographics and the growing numbers of start-ups in the key centres will grow strongly.

Foreign students walking on the Wroclaw University campus

Poland has the sixth-largest student population in the EU with a little under 1,350,000 students enrolled of which just over 5% are from abroad. While domestic students continue to have growing spending power, the Polish Government is actively supporting their Knowledge Economy and are keen to attract affluent students from outside the country.  These drivers will undoubtedly push demand higher and investors would be advised to look closely at Poland as a home for their capital.

chart depicting Poland's country numbers

Whilst current foreign students tend to come from neighbouring countries such as Ukraine and Belorussia as well as elsewhere in Europe, applicants from further afield such as Turkey and the Middle East, are growing in number.

The country’s political situation should be flagged, as the ruling party’s nationalist policies are fairly robust.  The EU has expressed concern over its movements with regards to the Judiciary, for example, but generally speaking these issues are not having much detrimental effect on investor interest.  Being outside of the Eurozone does also mean that Euro investors have additional currency risk.  This could explain the growing interest from outside the Continent with Far and Middle Eastern and US investors seen to be eyeing the country’s potential.

NETHERLANDS – Rising demand is inevitably leading to increasing rental prices.  Like most countries surveyed in this report, a general housing shortage is reflected in a similar picture for students, and as trends change, for young professionals both domestic and ex-patriate.

chart depicting Netherland's student numbers

The county’s success in growing its English Taught Programmes (ETPs) and government support for student recruitment is exacerbating the gap between supply and demand and their provision rate, though higher than some, is still only at 18% leading to new development potential.

The government’s motivation is to attract high-spending international student cohorts – currently most of these hail from Germany, Italy and China.

Key locations are, as expected, the major urban centres but as a way of working towards meeting demand institutions and developers alike are joining forces to create new beds in neighbouring towns where travelling into big city centres is both easy and economical.

IRELAND – Having provisions rates at almost 18%, Eire has recently seen a rapid rise in its available PBSA beds.  13% of its student population is made up of international students, the bulk of these coming from the USA, China and India.  It stands to gain from the UK’s decision to leave the EU (now reinforced by the latest election result) as a popular English-speaking and English-teaching higher education destination.

The government has established a National Student Accommodation Strategy, designed to address the woeful state of the student housing market.  The lack of beds close to Ireland’s universities was the subject of frequent comment amongst students, student welfare bodies and the press.  Significant, heavyweight inward investment has followed, and future projects are appearing in Dublin and Cork.

chart depicting Ireland's student numbers

The same pressure that pushed for greater availability, however, is now appearing as criticism of the high cost of the luxury accommodation that is now being provided in some projects.  As noted above, market forces and the investor appeal of this asset class has meant that international students are a key target market.  While Ireland is certainly not the only country where affordability (or rather, unaffordability) has become a hot topic, student bodies have been quick to raise complaint about the costs which are in many locations, in excess of €1,000 per month.  There seems to be no shortage of investors and developers, though, keen to expand into Ireland.

It should be remembered that planning considerations, such as public space and community space, are a key cost-adding element in Ireland development which has recovered significantly after the Global Financial Crisis, and this can be reflected in higher rents.

 

Notes

  • Data obtained from The Class of 2020, Studivest, Knight Frank, Study in Poland, JLL
  • 1 - Erasmus
    • The Erasmus Programme is a European Union student exchange programme established in 1987. Erasmus+, or Erasmus Plus, is the new programme combining all the EU's current schemes for education, training, youth and sport, which was started in January 2014.
  • Image in Poland section: International students in Wroclaw provided by Studivest.

 

This report is provided for information purposes only and no responsibility is accepted for any errors or omissions.  There is no investment advice contained herein and any decisions to invest into or divest from any of the markets should be made using the recipient’s market knowledge and that of their advisers.  Whilst Mellstock Studivest is happy to discuss sourcing of investment opportunities and providing suitable introductions with potential purchasers, no acquisition or disposal advice can be provided.

For more information, contact Tony Trescothick at Tony@mellstock.com