EXPO Real: Lack of supply main issue for student market

The lack of new developments is exacerbating the supply gap in student housing as demand keeps growing, delegates heard at Real Asset Media’s Student Housing, Micro and Co-Living briefing, which took place at the International Investors Lounge at EXPO REAL.

Oct 10, 2022 Real Asset Insight

“Interest rate rises in a short space of time have led to lower developments being done, while construction costs remain high”, said Rainer Nonnengässer, Executive Chairman, International Campus. “This means that rental increases are more likely”.

New Bonard research shows that indeed rents are rising in most European cities, as the end of pandemic-related travel restrictions has led to the return of international students.

“We have seen over 20% rent increases in the UK, +20% in Warsaw and high single digits increases in German University towns”, said Martin Varga, Real Estate Business Development Director, Bonard.

Lack of product is the issue, as Continental Europe has a 17% provision rate, half the rate of the UK, which remains the most mature market.

“Investors want to avoid development risk”, said Florian Obermaier, Head of Product Management Institutional Clients, Commerz Real. “So as a fund manager to try to take on more risk and enter projects at an earlier stage because we are very optimistic on prospects for the sector”.

Despite the increase in rents, there has been no drop in occupancy rates, Quite the opposite: they hover around 99% in Europe, with many PBSA schemes already full by September, leaving late-comers struggling to find accommodation.

“We have students living in tents because they cannot get a room, as the market in Denmark is so undersupplied” said Anne Sofie Vett Raaschou, Investment Director, NREP. “There are big opportunities in the market, but we need to make our products more affordable as well as more sustainable”.

The rise in energy costs should be an added incentive to accelerate the journey to net zero, she said.

Looking ahead, the headwinds for the sector are rising inflation, interest rates and high construction costs, but there are tailwinds that are equally strong if not stronger: strong and growing demand, rising rents and high occupancy rates.

“The fundamentals of the student housing sector are very strong across the market”, said Julia Momotiuk, Rented Residential Director, Bonard.

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