|Head of Investment Management EMEA|
For followers of purpose-built student accommodation (PBSA), the US and UK have dominated global investment over the past decade or so. But with the maturing of these markets, investors are starting to look farther afield for higher returns, notably mainland Europe.
According to Savills’ World Student Housing report 2016/17, global cross-border investment in the sector has accounted for 40% of all deals in the last three years as international investors have sought to diversify portfolios.
The report points out that investment has picked up particularly strongly in Germany, with investment funds and asset managers as the most active players on the buying side, not least GSA.
GSA’s entry to the German market came last year with acquisition of a portfolio of four properties with the potential for further development – 1,500 beds in total. The move marked the start of a five-year strategy by GSA to build a 10,000-bed portfolio in Germany under its Uninest Student Residences brand, and exploit an under-supplied market for PBSA in Europe’s largest economy.
As Savills’ report suggests, the inherent attraction of PBSA as a stable, income-producing asset with counter-cyclical characteristics during a prolonged period of economic uncertainty applies as much to Germany as it does in the UK.
Germany is one of Europe’s most popular destinations for foreign students, just 10-12% of the 2.8 million student population live in purpose-built accommodation. In other words, there is plenty of headroom for other overseas operators and investors to enter this market.
Not surprisingly, such an acute supply-demand imbalance has delivered strong occupancies and high rental yields across GSA’s new portfolio, which had been built only since 2012 and features assets in four of the country’s largest university cities: Münster, Dresden Darmstadt and Frankfurt.
But the European expansion of PBSA is far from restricted to Germany. Savills’ report also highlights growing levels of investment from foreign players in the Netherlands and France. Another study, Emerging Trends in Real Estate Europe, published annually by PwC and the Urban Land Institute, indicates not just a strong shift in sentiment towards PBSA generally but a broadening of interest across Europe. Where before it was seen as a viable sector mainly in the UK and perhaps Germany, the 2017 Emerging Trends survey features property industry leaders from Portugal, Spain, CEE and the Nordics all extoling the virtues of PBSA.
These countries each have their own market dynamics and rates of economic growth, not forgetting the differences in the policies of their respective governments towards higher education. Germany’s nascent PBSA market, for instance, undoubtedly benefits from relatively low tuition fees and a government that clearly encourages investment in the HE sector.
None of this detracts from the UK’s PBSA and HE sectors. As Savills suggests, it is unlikely that the UK’s leading universities will lose their strong global standing as a result of Brexit and the threat of stricter caps on student numbers although it does offer some opportunity for competing countries to gain ground. But to do so, many of these mainland European markets will need to raise their game, not just in HE but in the management of PBSA. They will need to emulate the UK in the establishment of specialised student accommodation operators because PBSA is as much about service as it is asset value.