26 June 2019
Student housing: study by Union Investment and bulwiengesa reveals investment potential in 65 European cities
• Focusing purely on German Class A cities means missing chances
• Münster, Cologne and Stuttgart top the new city ranking
• Dublin scores highest among the non-German cities
• New strategies are required for the mid-price segment
The university city of Münster, with almost 60,000 students, is the most attractive location for investment in new student housing. That is the finding of a new city ranking by Union Investment and bulwiengesa, part of an in-depth study comparing supply and demand in this sector across 61 German cities using 18 different metrics. Münster is followed at the top of the ranking by Cologne, Stuttgart, Karlsruhe and Hanover. The lowest ranked city is Trier – below Kaiserslautern, Bamberg, Greifswald and Chemnitz. The study also examines four non-German cities: Dublin, Amsterdam, Paris and Vienna, all of which ranked in the top third.
“The top 20 cities with the best conditions for investment in the student housing sector are an interesting mix comprising all seven German Class A cities, four major European university cities, plus a large number of ‘hidden champions’. A strategy that focuses exclusively on Class A cities ignores the opportunities that Münster, Karlsruhe, Hanover, Ulm, Braunschweig, Darmstadt and Koblenz in particular have to offer,” said Felix Embacher, Head of Division Microliving at bulwiengesa.
According to the study, the combined market potential for student apartments above EUR 500 per month (all-in) in the 61 German university cities surveyed is approximately 67,500 units. In the Class A cities alone, there is potential demand for around 29,500 student apartments – a 44% share of this price segment. The authors view EUR 500 per month as the threshold value for investor interest, based on current land prices and construction costs. The potential in this segment is particularly high in Munich and Cologne, followed by Hamburg, Berlin and Stuttgart. The cities with the lowest potential in this segment are Bamberg, Passau, Freiburg im Breisgau, Regensburg and Dresden.
In the next price segment, EUR 600–700 per month (all-in), the total market potential is around 18,600 units. In the top price segment, above EUR 700 per month (all-in), the estimated demand for new student apartments is around 12,700 units.
Lack of affordable student housing concepts
“As the sector undergoes dynamic expansion of supply and increasing professionalism through private-sector players, we should not overlook the enormous potential of the mid-price segment,” says Henrik von Bothmer, Investment Manager Micro-Living at Union Investment.
As discussed in the previous year’s report by Union Investment and bulwiengesa on Micro-Living in Europe, there is a great deal of potential in this mid-range bracket, i.e. EUR 400–500 per month (all-in). “The only way to provide the mid-price accommodation that the market demands and that would be profitable for developers and investors, especially in sought-after cities and locations, is to create simpler housing concepts, for example with shared kitchens or bathrooms.” Public authorities could also help plug the gap in supply by relaxing certain building control requirements, especially in terms of parking spaces and greater harmonisation of state building codes.
The study concludes that there are attractive opportunities for investment in new student housing across the selected university cities during the current market cycle. However, investors should also bear in mind that the student housing asset class emerged during an economic boom period. “Rental expectations and appreciation are likely to be more modest in future as the market will be unable to maintain the price dynamics of the start-up phase. Whatever happens, there are some fascinating lessons in store for the student housing asset class,” said Georg-Christian Rueb, Portfolio Manager Micro-Living at Union Investment.
The selected cities were scored using a total of 18 indicators, thereby providing an unprecedented level of insight. Eight of these indicators measure the supply side, i.e. the availability of existing and pipeline student housing from all types of provider as well as the coverage ratio for student apartments from EUR 500 per month (all-in). The demand side is measured using a further 10 indicators. These include the number of students in winter semester 2017/18, the trend in student numbers since winter semester 2012/13 and the projected number of new students in future. The same weighting was applied to the supply-side and demand-side indicators. The study examines 61 German cities plus four major cities in other European countries. Given the slightly narrower spectrum of data available for the four non-German cities, the number of indicators used was reduced to 14. Some of the data for these non-German cities was provided amongst others by education and student housing research firm Bonard.
Union Investment Real Estate GmbH
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