As student mobility returns, how is student housing provision holding up?

As students flock back to campus after the recent upheavals of COVID-19, student housing is proving its worth as a defensive counter-cyclical asset class. Tough times suit this sector, and the pandemic has only confirmed its strong fundamentals and enduring appeal. After an initial drop of 5–10% on average across Europe, occupancy is almost back to pre-pandemic levels. Not only have students demonstrated a strong preference for on-site rather than online learning but there is currently pent-up demand from “two years of freshmen”: students forced to defer college entry for a year. Private PBSA – purpose-built student accommodation – in particular has seen strong take-up. Professional private operators adjusted well to the COVID-19 restrictions, aligning residence operations and providing convenient and safe living conditions for their tenants.

Compared with hotels, office and retail premises, student housing occupancy rates have held up well. To give a snapshot of current levels, BONARD, a market research and advisory firm specialising in student housing and rented residential asset classes, conducted research on occupancies across the selected European PBSAs. Findings indicate that the European average stood at a strong 94% in September 2021 (when the academic year had not started in all countries), with some (Germany, the Netherlands, Belgium, Poland, France) doing better, and the Mediterranean and the UK lagging a little but still with 90%+ occupancy rates. Even with a recent drop in private rental rates, PBSA remains competitively priced which, alongside its “home-from-home” appeal and the added value of on-site services and community life, is attracting more and more students.

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So, with all these students looking for PBSA, is supply meeting demand? The answer is: not really. Bed-to-student ratios remain low, even in the most mature markets, the UK and the US. Given this, as well as the fact that yield is staying strong, it is unsurprising that there is a keen appetite for investment in this sector. Transactions have maintained a swift pace, even during the pandemic, and the average transaction value per room has not changed much: according to BONARD’s preliminary numbers from August 2021, EUR 137,000 in continental Europe and a little more in the UK, where a few very expensive transactions skewed the picture. Currently, the company estimates the European market is covered by about 230 portfolios totalling roughly 3,000 assets: 40 with 5,000+ beds, 76 mid-range and the rest very small portfolios, often family-owned. Overall, BONARD estimates a transactional potential of about EUR 90–95 billion in the sector, further underlining prospects of an exciting future, as well as about EUR 12.7 billion investment potential in new stock, representing an opportunity for value-added and opportunistic capital. 

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The market is still a long way from saturation, despite a strong pipeline: BONARD data shows 170 to 180 new schemes are coming to market per annum, and about 600 assets are currently under construction, development, or planning for student housing across Europe. Even so, there’s still plenty of room to grow, in Continental Europe in particular. In fact, in some places (e.g., Berlin), we have reached a situation where there is less opportunity to invest than there is capital available. 

BONARD recently carried out a case study of the city of Berlin, a signature city for this asset class, to reveal how student housing is shaping up to meet the demands of post-pandemic student mobility. Berlin is home to 150,000 students, about 43,000 of whom are internationally mobile. There is almost EUR 1 billion’s worth of transactable stock. The current provision rate of 10.6% is only forecast to rise slightly, to 11.9%, despite a significant number of developments in the pipeline and, with even more students forecast to be coming, saturation is a long way off. 

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As these snapshot show, there is a plenty of transactional and investment potential in cities across Europe, and student housing continues to be a sector to watch.

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