The global real estate landscape is constantly evolving, yet certain segments consistently demonstrate resilience and robust growth potential. Among these, the student accommodation sector has emerged as a standout, attracting significant attention from investors worldwide. A compelling survey conducted by PwC underscores this sentiment, revealing that a substantial 69 percent of investors hold a positive or very positive outlook on the prospects of the student accommodation market for 2016 and beyond. Within Europe, this specialized property type particularly shines in Germany and the United Kingdom, recognized as leading destinations for student housing investment.
Tranio.com, a prominent international real estate platform, has meticulously analyzed these two pivotal markets to offer an insightful overview of their current conditions. This in-depth examination provides crucial tips and strategic considerations for investors looking to capitalize on the dynamic opportunities within student housing. To effectively navigate and determine the most suitable country for investment, prospective investors should carefully evaluate three fundamental criteria that shape market performance and future growth.
1. Investment Volume: A Tale of Two Markets
Student property investment volume, 2009 to 2015
When comparing the sheer scale of investment, the United Kingdom’s student property market dwarfs its German counterpart, attracting over ten times the capital. This significant disparity highlights the UK’s long-established maturity and liquidity within the student housing sector. However, Germany presents a compelling alternative, characterized by a notably more stable and consistent growth trajectory in investment volume over recent years.
Between 2009 and 2015, investment in German student accommodation exhibited a steady upward trend, experiencing a minor dip only in 2012. In stark contrast, the UK market saw a contraction in investment during 2013-2014, before experiencing a dramatic resurgence and significant growth in 2015. That year marked a record-breaking period for both nations. Germany witnessed an almost two-fold increase in student housing investments, reaching €525 million, while the UK’s market experienced an extraordinary three-fold surge, hitting an impressive €5.8 billion.
Looking ahead, robust growth in investment volume is anticipated for both Germany and the UK. Nevertheless, Germany is projected to lead with a faster pace of growth. This acceleration is primarily driven by a more rapid increase in its student population, coupled with a severe and persistent shortage of suitable accommodation. This supply-demand imbalance creates a fertile ground for new capital inflows and development, promising strong returns for early and strategic investors in the German student housing market.
2. Student Demand: Driving the Market Dynamics
Number of higher education students enrolled, 2009 to 2015
Understanding student demand is paramount for successful student accommodation investment. In Germany, the demand for student housing is escalating at a rapid pace, fueled by a continuous increase in the overall student population, including a growing influx of international students. Conversely, the United Kingdom has observed a slight decrease in its total student numbers, posing different challenges and opportunities for its accommodation market.
As of 2015, Germany hosted an impressive 2.7 million students, surpassing the UK’s 2.3 million. However, the UK maintains a higher proportion of international students, with 19 percent of its total student body originating from abroad, compared to 12 percent in Germany. This higher percentage in the UK reflects its strong global appeal and the long-standing reputation of its universities.
The presence of international students is often closely correlated with the number of prestigious universities within a country. The UK boasts 44 universities featured in the esteemed *Times Top 400* educational institutions ranking, attracting approximately 436,000 international students. Germany, while having fewer at 37 such prestigious universities, still draws a significant 320,000 international students. Globally, following the United States, the UK and Germany stand as the second and third most popular destinations, respectively, for top-tier higher education, underscoring their enduring appeal to a diverse international student body.
3. Key Factors Influencing Student Demand: Beyond Rankings
While the number of prestigious universities undoubtedly plays a crucial role in attracting international students, it is not the sole determinant of demand for student accommodation. A confluence of other significant factors shapes student mobility and, consequently, the need for housing. These critical elements include:
- Competitive Tuition Fees: Germany stands out in Western Europe for its remarkably low tuition fees, often being about one-third of what students might pay in the UK, even when factoring in accommodation costs. This affordability makes Germany an incredibly attractive option for international students seeking high-quality education without the burden of exorbitant fees. In contrast, the UK significantly increased its tuition fees several years ago, a policy decision that has arguably deterred many prospective students and shifted some demand towards more affordable alternatives.
- Favorable Visa Regimes: Germany offers a more accommodating and attractive visa system compared to the UK. A notable advantage for international graduates in Germany is the provision of a six-month window to seek employment within the country after completing their studies. This significantly enhances Germany’s appeal as a destination for students aiming for post-graduation career opportunities. The UK, on the other hand, has implemented stricter visa requirements as part of a broader strategy to manage immigration levels. This policy has removed the previous opportunity for university graduates to remain in the country to find a job, now requiring them to apply for a separate work or business visa, which can be a more complex process.
- Low Youth Unemployment Rates: The economic prospects after graduation are a major consideration for international students. Germany boasts an exceptionally low youth unemployment rate, hovering around seven percent. To put this into perspective, the Netherlands experiences 11 percent, the U.S., Australia, and the UK are at 14 percent, France is at 24 percent, and Spain faces a nearly 49 percent youth unemployment rate. Such low unemployment in Germany provides a strong incentive for students, particularly international ones, as it signifies a high probability of securing employment upon graduating, making their educational investment more worthwhile.
Globally, the number of international students is on a remarkable upward trajectory, having doubled over the past decade to reach four million individuals. Projections indicate that this number is expected to double again by 2025, potentially reaching eight million. This global surge will undoubtedly amplify the demand for student property in both Germany and the UK. However, given current market conditions and policy environments, the German student accommodation market is poised to experience a more pronounced impact from this growing international demand.
The UK student-housing segment has benefited from substantial investment over many years, leading to the development of a vast array of purpose-built student properties. Consequently, the provision rate – the percentage of students for whom dedicated accommodation is available – in the UK is among the highest, standing at approximately 23 percent. This indicates a relatively mature, and in some areas, potentially saturated market.
In contrast, Germany’s supply of purpose-built student property is still comparatively low, with a provision rate of just 10 percent. This significant difference highlights that while the UK student property market is mature, and possibly nearing saturation with investments often driven by a ‘bandwagon effect,’ genuine rapid growth drivers are becoming scarcer. Investors in the UK may find themselves competing in a highly developed market where yield compression is more likely.
The German market, however, began its significant development in student accommodation more recently. It currently faces a substantial supply deficit. With the number of students continuing to grow rapidly, the demand for student housing in Germany is projected to increase exponentially. This will inevitably lead to a substantial inflow of investment, fueling both new construction and modernization of existing properties. For instance, the percentage of student property in Germany’s private sector is expanding at an impressive rate. In 2000, private student housing accounted for just six percent in the 30 largest cities; by 2015, this figure had risen to 16 percent. Projections suggest that private student housing will further grow to 22 percent by 2020, directly attributable to the burgeoning investment in this vital sector.
George Kachmazov, managing partner at Tranio.com, offers an expert perspective on this evolving trend: “Student accommodation represents one of the most promising property types for astute investors. The global trend of urbanization means that populations in major cities are continually growing, while the available space remains finite. The example of modern Tokyo, where residents often live in compact micro-flats of 10-20 square meters, serves as a prototype for what cities like Berlin, London, and Paris may experience in the near future. This reality drives the high liquidity and robust potential we observe within the student property segment.” Kachmazov further notes, “We also view the residential property segment as a whole, understanding that student property is increasingly considered in a broader context. It’s not just about traditional residence halls but also encompasses micro-apartments, where students represent just one of several tenant categories.”
Delving deeper into the distinction, Kachmazov explains, “The primary difference between conventional apartments and what we traditionally define as ‘student apartments’ is that the latter typically refers to shared living spaces with communal bathrooms and kitchens, exclusively designated for students. Ordinary apartments, however, are small, self-contained units suitable for any individual or couple, regardless of their student status.”
He elaborates on a significant market shift: “In Germany, particularly in growing university cities, the construction of micro-apartments – self-contained studios typically ranging from 20 to 25 square meters complete with private bathrooms – is rapidly gaining momentum. The demand for such properties is expected to continue its upward trajectory. While not strictly ‘student accommodation’ in the traditional sense, as any tenant can occupy them, I believe this model is superior to conventional student apartments for investors. The risk of low occupancy is significantly reduced. For example, if for any reason the student influx declines, such a property can easily be rented out as a regular small flat, offering greater flexibility and stability for the investor.” This strategic pivot towards versatile micro-apartments underscores a sophisticated approach to student housing investment, blending specialized demand with broader market appeal.