Flexible rentals are on the rise, with many leading European student operators adopting short stay strategies to optimise their buildings, provide better value for investors, and create better experiences for students. This piece explores several of the macro factors underpinning the increased adoption of flexible rental models in student accommodations across Europe.

‍

Multi-tenure Assets Stay with the Trends

The changes and different evolutions of real estate trends have always impacted asset classes. Currently, there has been a growing number of mixed-asset class buildings being constructed and acquired across Europe. This merging of classes such as multifamily, student and hospitality can often lead to significant issues surrounding the operational management of these properties, with multiple tenures and differing lease lengths, frequently all within the same building.

This is a particularly strong trend in Europe as increasingly creative solutions are brought to market to make new construction or investment in brownfield sites viable. For example, due to planning and other legislative issues related to the use of buildings, accommodations like hotel-licensed assets have been converted to student buildings in an effort to service the mass undersupply of student accommodations in certain areas.

Conversely, some cities in the UK are dealing with an oversupply of beds, with operators applying for a “change of use” on certain floors or in some cases, entire buildings to shift to a Flexible Living or CoLiving model to ensure the building is occupied and optimised. For operators, the ability to remain agile is key, and in uncertain times the ability to adapt and pivot to change will be the ultimate key to survival & success.

‍

Flexible Rental Models as Defensible “All-weather" Assets

Following the pandemic, many real estate investors & operators made moves to ensure that they had more defensive & resilient portfolios. Many learned the hard way that the world can quickly change drastically and that once committed to the “old world” of residential models discovering that they are not very adaptable to world events (pandemics, wars in Europe, recessions, interest rate crises etc).

This has led operators to look for ways to future-proof their businesses to reduce the risk of unforeseen circumstances, such as international student numbers being impacted, or cities becoming under or over-supplied with buildings.

On the other hand, investors are in search of “all-weather style” funds across assets. Investors can create more defensible assets by utilising strategies like short, medium and long-term leases, such as summer short-stay models, 42-week tenancies, or all-year-round approaches that capitalise on travel trends.

Increasing revenue at high points of the year, and having a real solution for any low points or crises leads to truer long-term revenue resilience. We have started to see global companies like Brookfield, Starwood and Blackstone recognise the benefits of this and believe that in time this will be recognised in more valuable assets and improved cap rates.

‍

The Need for Immediate Help

Recent studies have revealed the effect of the cost of living crisis facing Europeans, and students are not immune to this. Currently, there are strikes in major UK cities over the cost of accommodation and young adults at the start of their independence are a very “at risk” group. Lowering the cost of student living is becoming a significant issue for operators and many articles have touched on how the crisis has started to impact students’ decision-making process on whether or not to go to university.

There are not an enormous amount of levers but operators have realised they can make a real impact in easing this strain for students with short-stay strategies. By offering 42-week tenancies, coupled with a summer strategy, operators can lower the overall rent burden for students. In doing so, they could potentially reduce rent by more than 20% which would have a huge impact on students' ability to access PBSA during these uncertain times.

For investors and asset owners, the combination of a summer short-term strategy can actually increase their overall returns by 10-20% or more, creating a true “win-win” for students and asset owners. These shorter tenancy agreements can also make a significant difference for low-income families, making university and studying away from home more accessible for all. 

‍

ESG: Optimising What We Have

ESG continues to dominate the future strategies of inventors and operators. In a world where building costs are high and land is scarce, there is a real need to maximise the utilisation of properties. Where properties are naturally empty over the summer or only reach 95% occupancy during term time, adopting a short-stay strategy allows for that space to be made available for other students who might want to travel, spend a summer in a different country, and it maximises the square footage of a building which is important for funds, and environmental and social factors.

It also drives vital spending on local communities (shops, restaurants etc) at a point in the year when otherwise student areas are relatively empty/quiet, such as during over the summer. Collectively society needs to think harder about how to better utilise assets and this is a great solution for real estate partners to help think about their ESG optimisation.