Germany joins Europe’s student property boom

Humboldt University, Berlin Photo: ActiveSteve

Germany has joined Europe’s student property boom, as construction and investment in the growing sector both increase.

German universities have recorded a significant increase in student numbers in recent years, due not only to the abolition of military service in 2001, but also to the growing numbers of international students choosing to take up their studies in the country.

With the student population growing, though, there is a shortage of housing, which has prompted investors to fill the gap in the market with a boom in the building of privately funded and operated student apartments. As a result, the German student housing market achieved an outstanding transaction volume of over €200 m in 2014, according to the advisor’s figures, by far the highest volume of investment to date.

“The sharp rise in private supply is attracting new players,” says Marcus Roberts, Head of Student Investment at Savills. “Notably, pension funds and insurance companies are increasingly acting as buyers for the first time in this market. But we are seeing increased interest from the sector from overseas investors/operators looking to grow their existing platforms.”

Germany is not the only country to see strong growth in its student property sector, though: Spain, too, has enjoyed an increase in interest, thanks to the higher returns available when compared to other commercial property assets. Madrid and Barcelona will soon be home to two new developments with a value of €52 million, representing a total of 940 new student units.

According to CBRE, three out of the 10 largest investment transactions in Europe are for student properties.

The UK, however, remains at the head of the pack. More than 409,000 students have been accepted on to UK higher education courses this year, a record high and a rise of 3 per cent on the same point last year.

The number of 18-year-olds placed on degree courses is up 5 per cent year-on-year, with a 2 per cent rise in the number of 19-year-old entrants, although there are fewer acceptances from older age groups.

With demand for housing growing, rents have also risen: between 2010 and 2013, rents rose 25 per cent, according to the student housing charity Unipol. This compared with rises in the wider rental market over the same period of 13 per cent, according to Homelet. The latest Unipol data, to be published in November, is expected to show further rises of around 7 per cent.

Mish Liyanage, Managing Director of The Mistoria Group comments: “The cost of student accommodation is a major consideration for most students, but the quality and location are important factors too. We know from our research that students want quality white goods, superfast broadband, security, large plasmas etc. The most common downfall of student digs was cited as poor quality build of the property and furniture, followed by poor internet connection.

Indeed, demand for quality accommodation has seen a rising number of international students in London spend up to £1,500 per week to live in nice accommodation in Mayfair and Knightsbridge. This taste for prime property has driven up the rental market, according to agency EJ Harris .

With London’s high prices, though, the UK capital has weakened as an option for investors seeking strong returns on their purchases. Instead, investors are looking at regional cities for the best student yields – or, for some, even further north.

According to Zoopla, university cities in Scotland offer the best areas for profit for buy-to-let investors in the UK.

Its research found that Edinburgh – home to the University of Edinburgh – offers buy-to-let landlords an average rental yield of 6.11 per cent, the best in Britain. In addition, Aberdeen, where Aberdeen University was founded, was third in the buy-to-let investment league table, with an average yield of 5.66 per cent.

Dundee, birthplace of Dundee University, came fourth, posting a 5.11 per cent average yield. Glasgow – place of Nicola Sturgeon’s alma mater, Glasgow University – achieved fifth place on the back of average yields of 5.07 per cent. Amid the Scottish high-performers, Coventry, which gives its name to the university in the town, came in at second place, with a 6.03 per cent average yield.

Wherever investors choose to enrol their money, though, the sector’s fundementals remain the same: thriving populations and low supply are driving up yields.

Going back to school has rarely seemed so cool.