European student accommodation now a ‘buy’ for investors
A supply-demand imbalance and strong yields makes the European student accommodation market
an attractive real estate investment option, but investor decisions should be made on a city by city
basis and not at a national level, according to international real estate advisor, Savills, in its first pan-
European report on the sector.
In Spotlight on European Student Housing 2013, the firm analyses the investment risk of 119 cities
that are home to Europe’s top tier universities*, identifying an investor ‘sweet spot’ of cities which
combine strong, high quality universities, low supply of purpose built accommodation, strong demand
and potentially higher returns. The report identifies opportunities right across the ten European
countries studied.
Student housing has been a major beneficiary of the flight to quality among property investors in the
last five years. The volume of transactions in Europe increased by almost 81 per cent per annum. In
the first half of 2012, investment volumes in the sector reached €1 billion, double that of the same
period a year earlier, according to latest data from Real Capital Analytics.
“Opportunities exist right across Europe, with gross yields for primary accommodation ranging from
7.0 per cent in Spain and Italy to 5.5 per cent in France, Germany and the UK, ” says Yolande Barnes,
Savills director of World Research.
“But investors need to look beyond headline supply-demand and yield indicators to fully understand
market strength. The strength of individual institutions is key, in particular the ability to attract
growing numbers of high achieving, internationally-mobile students.
The UK is Europe’s most established destination for student housing investment, attracting the
highest number of international students within Europe, and accounts for 28 per cent of cities within
the top European city investor opportunities. However, Savills cautions that increased fees, high
rents and visa restrictions could pose risks, particularly as other European institutions begin to
increase the number of courses offered in English to attract growing numbers of transient global
students.
Meanwhile, growing investor opportunities are opening up across Europe, which look more attractive
if land and build costs are taken into account. Paris, Milan, Barcelona and Amsterdam pose standout
opportunities on the basis of large student populations, while London, Oxford and Edinburgh will
continue to offer strong investment opportunities for those able to find entry points.
Amongst smaller student locations, the academic reputation of institutions in Lausanne and Zurich
and low levels of student housing suggest lower-risk investment opportunities.
“Yield compression in mainstream property assets is boosting the appeal of student housing
particularly for commercial investors looking to spread their exposure into residential,” says Barnes.
“It offers relatively high yields and low voids, producing a secure income stream on a single
operational lease. In this way it could be considered a stepping stone to ‘build to let’ or purpose-built
mainstream rental blocks in the open market rental sector.
“Rising incomes, improving standards of living and a rapid growth in international students mean a
significant group of students have higher expectations of their accommodation. Europe and North
America together account for almost six out of ten internationally mobile students at present.
“Leading European universities need to ensure they offer high quality and well-managed
accommodation in order to continue as destinations of choice for the rapidly growing pool of
academically ambitious, global students,“
* Analysis based on The Times World University Rankings Top 400 2012-2013
Source : Company