02 / 12 / 22 - 4 minute read
While this squeeze is partly down to a longterm acute supply shortage in Barcelona,
enrolments well and truly taken off this term across Europe, as memories of the pandemic fade and fears of having learning disrupted by lockdowns ease. But it’s more than just an uptick in student numbers that makes student accommodation an attractive investment proposition right now. Several market dynamics have put the sector on the radar of investors looking to diversify their portfolios. So, what is making purpose-built student accommodation (PBSA) so attractive? And where do the opportunities lie?
At PATRIZIA, we’ve been one of the most active investors in the European PBSA market in the past six months, having invested €550m totalling 2,800 beds over four countries, including Denmark, Ireland, Italy and Spain. Our most recent deals were in Barcelona and Turin, comprising 1,209 beds with a total investment of €173 million, with further deals in the pipeline. Student accommodation has proven far more robust as a sector than many expected two years ago, amid the worst of the pandemic. When COVID-19 hit, student housing occupancy dropped significantly, of course. At the time, many investors were looking for distressed assets, hoping to secure PBSA accommodation at knockdown prices. But this never eventuated. Investors and lenders instead battened down the hatches and waited for the COVID storm to pass. Pricing remained resilient, meaning the yield profile has remained at or close to pre-COVID levels. Indeed, heavy equity demand and compressing yields in the residential sector, coupled with negative carry due to increasing interest rates, means institutional investors are increasing their focus on other living sectors. Student, senior living and micro apartments are increasingly seen as ways to diversify their portfolios and enhance returns.
Antonio Marin-Bataller, Managing Director, pan-European Transactions at PATRIZIA
Student accommodation is also benefiting from strong rental growth. In most European countries, the sector sits outside the regulatory framework that constrains growth in residential rents, allowing investors in PBSA to capture the full estimated rental value (ERV) growth. That means investors seek PBSA assets that give them exposure to this growth as quickly as possible. Brexit has also impacted the sector as European students are shunning the UK and seeking alternative universities in continental Europe to avoid paying full international fees and complicated visa and entry restrictions.Take Dublin, for example, which welcomed 139% more European students following the UK’s exit from the European Union (EU). Universities in the Netherlands, Germany, Spain and elsewhere are increasing the number of English taught courses to capitalise on this trend.
Of course, some markets hold more significant potential for investors than others. At PATRIZIA, we are particularly interested in Italy, where the PBSA market is embryonic. In Turin, where we completed a 582-bed deal in the summer, there are around 107,000 full-time students, with just 6,611 beds available. Only 1,767 of these beds are modern PBSA.
Historically, universities or religious institutions have provided accommodation, but much of it is now outdated and no longer meets the expectations of the new generation of students. Spain is also attractive, as studying away from home – a familiar experience elsewhere – becomes more established. Spain also benefits from the Spanish speaking diaspora, with strong demand from central and South America. It is also now the number one destination for European students under Erasmus+, the EU’s university exchange programme.
While there are pockets of oversupply in some cities, such as Seville or Malaga, in larger cities like Barcelona and Madrid, which have huge site constraints with space at an absolute premium, PBSA is a hugely attractive investment.
The European PBSA sector also benefits from global megatrends, such as demographic changes and increasing urbanisation, as more and more people flood to big cities and stay longer in education. We also expect the PBSA sector to prove resilient if European economies nosedive. Historical data shows that in a recession more people choose to study or remain in education for longer.
These factors mean student accommodation is rising to the top of many institutional investors’ shopping lists. And while we don’t expect the unprecedented experience of Amsterdam this summer to be repeated elsewhere, we do think the sun will continue to shine on the sector for some time while other asset classes battle headwinds.