According to a survey by PwC, 69 per cent of investors consider the prospects of the 2016 student accommodation segment to be good or very good. Among European countries, this property type is most popular in Germany and the U.K.
Tranio.com has examined these markets in detail to provide a brief glimpse of their current conditions and provide tips on what to look out for when strategizing on student accommodation investments. To discern which country to invest in, you should consider three basic criteria.
1. Investment volume:
The U.K. student property market attracts more than 10 times more investment than its German counterpart does, but Germany’s market is characterised by more stable investment growth.
The volume of student accommodation investment in Germany increased between 2009 and 2015 and declined only in 2012. In the U.K., it shrank in 2013-2014, though it grew suddenly again in 2015.
The year 2015 was a record year for both markets. In Germany, the investments grew to €525M (almost two-fold growth on the previous year) and to €5.8B in the U.K. (three-fold growth).
The investment volume can be expected to demonstrate future growth in both Germany and the U.K. However, in Germany it is likely to grow faster, as the number of students is increasing more rapidly there and because there is a severe shortage of accommodation.
2. Student demand:
In Germany, student demand for accommodation is increasing faster, as the number of students (including foreign nationals) continually rises, while in the U.K. the total number of students is decreasing.
As of 2015, Germany had a total of 2.7M students, leaving the U.K. behind with 2.3M. However, the U.K. has more international students, with a rate of 19 per cent (versus 12 per cent in Germany).
In general, the number of international students correlates with the number of prestigious universities in the country: the U.K. has 44 universities in the Times Top 400 educational institutions ranking and 436,000 international students, whereas Germany has 37 such prestigious universities and 320,000 international students. The U.K. and Germany come second and third, respectively, in the number of top universities, following the United States.
3. Factors affecting demand:
Despite the arguable dependence of the number of international students on the number of prestigious universities, we recognise that the former does not rely exclusively on the latter, and that there are other factors that figure into this relationship. These include:
- Low tuition fees. Germany has one of the lowest tuition fee levels in Western Europe (about thrice lower than the U.K., including accommodation), whereas the U.K. raised tuition fees significantly several years ago, frightening off many prospective students.
- Favourable visa regime. Germany has a more attractive visa system in comparison with the U.K. For instance, German graduates have six months to find a job in the country. The U.K. has embarked on a policy for decreasing the influx of immigrants, making visa requirements more stringent. University graduates do not have an opportunity to stay in the country to find a job anymore, and they must apply for a work or business visa.
- Low youth unemployment rate. In Germany, the youth unemployment rate is as low as seven per cent. For reference, in the Netherlands it runs at 11 per cent; in the U.S., Australia and the U.K. it is 14 per cent; in France it’s 24 per cent; and almost 49 per cent in Spain. In other words, the students coming to Germany have a high chance of getting a job upon graduation.
In general, the number of international students is increasing all over the world: it has doubled over the last decade, hitting four million people. By 2025, the number of students is expected to double again and hit eight million people. It will affect the demand for student property in both Germany and the U.K. However, under current conditions the German market may experience a stronger impact.
Thanks to the significant volume of investment in the U.K. student-housing segment, many such properties have already been built. The provision rate in this country is one of the highest (23 per cent). In Germany, the supply of this type of property is still at a relatively low level in comparison with other countries (provision rate of 10 per cent).
Therefore, the U.K. student property market is mature enough, even close to saturation. Significant investments are being made in this segment in a larger bandwagon effect: there are no real rapid growth drivers now.
The German market, on the other hand, began developing relatively recently. It has a supply deficit now, and in view of the growing number of students, the demand for student housing in the country will only increase. The consequence of this will be a significant inflow of investment. For instance, in Germany, the percentage of student property in the private sector is growing rapidly. In 2000, in the 30 largest cities it ran at six per cent compared to 16 per cent in 2015. The percentage of private student housing will grow to 22 per cent by 2020, owing to the investment in this sector.
George Kachmazov, managing partner at Tranio.com, says: “Student accommodation is one of promising property types for investment. The number of people in large cities is growing, but the space is still the same. The modern Tokyo, where the people live cooped up in microflats of 10 – 20 sq m, is a prototype of what will become of Berlin, London and Paris in the near future. That is why we observe high liquidity and strong student property-segment potential. We also observe the residential property segment as a whole, seeing that student property is more and more often considered in a more general sense, not only as residence halls but also as microapartments, in the market of which students are just one of the categories of tenants.
“The difference between the ordinary apartments and the student apartments is that the latter are shared apartments with communal bathrooms and kitchens. Such property is for students only, while the ordinary apartments are small, self-contained flats for anyone to live in.
“In Germany, the construction of microapartments, which are studios of 20–25 sq m with bathrooms, is gaining momentum in the growing university cities, where the demand for such properties will continue increasing. This is not quite student accommodation in its entirety, as anyone can be a tenant there. In my opinion, this is better than the conventional student apartments. In this case, the risk of low occupancy is much lower. For example, you can rent such a property out as a usual flat, if the student flow has for whatever reason declined.”