While investment in most property sectors tumbled in the second half of 2022, JLL data shows Purpose Built Student Accommodation (PBSA) posted a record year, with €11.6 billion deployed across EMEA markets.

JLL estimates there are more than 20 million full-time students across the EU and UK. After an occupancy hit during Covid, demand for PBSA accommodation has bounced back, with student numbers – particularly those studying abroad – continuing to grow fast.

“The internationalisation of student mobility, and wanting incredible experiences abroad alongside world-class education, means there is huge demand for all-inclusive PBSA options,” Frank Uffen, MD Partnerships & Community with The Social Hub, notes.

Chronic undersupply in major university cities

The energy crisis is further boosting demand for energy-efficient apartments, says Georg-Christian Rueb, fund manager at Union Investment: “Here the modern PBSA apartment has a clear advantage over a student apartment share in an unrenovated building.” These demand factors are coming up against chronic undersupply, with JLL estimating 2.6 million more beds are needed in Europe’s main university centres to keep up with existing student populations. Rising costs, changing regulations and lack of available land on or near campuses make new PBSA construction challenging, Uffen notes. 

The Social Hub, though, is optimistic it can find opportunities with its public and private partners. “We are very excited about opening new locations in Porto, Rome, Florence, San Sebastian, Glasgow and Turin,” he says. To combat the market dislocation, International Campus Group CEO Gawain Smart says the firm is being more creative in how it sources projects: “We are focusing on selective acquisitions in key markets and on refurbishment of the portfolio, as well as conversion projects in the near future.”

Satisfying student demand for quality housing with personal space means providing a studio, including bathroom and kitchen, in well-located sites with access to services like house management, explains Smart. Easy booking, secure access and dedicated community programming are also key.

A robust counter-cyclical profile adds to PBSA assets’ attractiveness. The education sector has a degree of immunity to economic recessions, with relatively stable demand for student accommodation offering institutional investors a steady, recurring cash flow, Dr Lars Vandrei, Senior Research Manager with Catella Residential Investment Management, observes: “PBSA investments still offer higher yields than the traditional residential segment, making it easier to achieve target yields.”

Maximising the opportunities depends on knowing the market, though, as every country has a different system, adds Benjamin Rüther, Catella’s Head of Fund Management: “Research the international connections between target universities and students’ origins. Get to know the private rental sector, as this may be the strong competitor in a city.”

Classic residential-style property management is not enough

And while high occupancy turnover allows rents to be adjusted to market levels for new leases, all-in rents mean intervening operating cost rises can’t be passed on to tenants, notes Henrik von Bothmer, an investment Manager at Union Investment: “The landlord must therefore keep a close eye on all-in rent adjustments for new tenancies and counteract cost increases.”

Higher turnover also entails a bigger letting and marketing effort, he adds: “This requires specialised managers who can successfully offer a complete digital rental process. Classic property management, as in traditional housing, is not enough.”

By Paul Allen