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Student living
‘Due to the evolving nature of the sector across Europe and increasing capital allocation, investors must become more creative in how they invest to gain or increase exposure. The result is that customer demand for student accommodation shows no signs of abating any time soon.’
Student accomodation has become less of an investment niche sector than an accepted mainstream asset category over the past three years, as investors seek out yield in areas they might not have considered investing in previously. Germany, in particular, has been playing catch-up to more developed markets like the UK or the Netherlands as the asset class has gradually gained acceptance, but is now going full-steam ahead in developing student accomodation in university towns right across the land.
As German universities increase their enrollment and raise their competitiveness to attract foreign students, demand for student accomodation is rising – as are the costs of accomodation for students. A new index on the cost of student housing has now been launched by the Institut der deutschen Wirtschaft (IW) in Cologne, student accomodation investor Deutsche Real Estate Funds (DREF) and the market leading internet property portal ImmobilienScout24. The index will be re-calibrated at the start of each student semester.
The first reading shows that the most expensive cities for student accomodation are Munich, Frankfurt and Hamburg – cities where government-subsidised accomodation is particularly low. The typical German student apartment is 30 sqm with a built-in kitchen and located about 1.5km from the university. In Munich a student paid €580 monthly for such an apartment, whereas in Bochum in the Ruhr area the same accomodation cost €329 or about 40% less.
On the basis of the ImmobilienScout24 database, the cost of student accomodation has risen in all eleven of the cities initially surveyed, with Berlin showing the biggest jump of nearly 30%. The number of single households among 18 to 29-year-olds in Berlin rose between 2012 and 2014 by 5%, although at €386 monthly the cost of a typical student apartment is still less expensive than in Munich, Hamburg and Cologne.
Prof. Michael Voigtländer of the IW says, "It's not just students and apprentices who are looking for apartments, but more and more singles. The demand for micro-apartments is rising disproportionally, which is why investors and project developers are being pressed to find innovative and affordable solutions for small households." Recent figures from the Munich Students' Union show that 15,000 students are chasing 10,000 student apartments, in a city where the student rents have risen 50% in the last five years.
Felix Bauer, the CEO of DREF, said of the new index, "Up until now there has never been reliable data on the rental price development of the student accomodation market in Germany. This index will change that, by tracking the level of rental costs and any changes, which is important fundamental data for real estate investors." REFIRE will be keeping an eye on the new index, and we expect to have more to report on initial findings in an upcoming issue.
REFIRE met with Felix Bauer at the recent MIPIM to discuss DREF's investment of more than €200m in the student sector since 2015. The company owns and operates more than 3,200 student apartments in Germany, and is lining up the acqusition of a further 1,800 units this year. It has investment capital of €150m available, including a €50m credit line from Chenavari Investment Managers. The Bauer group is the company's principal shareholder, while Internos Global Investors and the Somerston family office also have a stake totaling 27.5%
Bauer said of the development in student accomodation, "We're finally seeing some movement and trading in Germany in the sector, with a number of portfolios above €100m, and five or six buildings. There's movement now in the German market with insurance, pension funds, institutional money moving in." Last year saw total private investment in the German student housing sector of €525m, a doubling over the previous year, but still low by international standards.
DREF itself has just bought a student residence in Munich for €60m, including a test and examination centre with capacity for 400 students. The property contains 215 student apartments and 130 apartments for young workers, with the first apartments ready for occupation this month. The rent will be €450-500 per month.
Also at the MIPIM, German collective interests in the student accomodation sector launched the Bundesverband für Studentisches Wohnen (BfSW), an association representing the interests of investors in the micro-living segment. The chairman is student housing veteran Rainer Nonnengässer, the CEO of MPCC Micro Living Development GmbH, while the deputy chairman is Felix Bauer himself.
Among the goals of the new association are, among others, the reduction of red tape in the issuing of building permits for qualifying properties, which are currently subject to 16 different state ordinances across Germany's federal states. These include requirements for parking spaces, where none may be needed, for example.
