Studying the market:
Why purpose-built student accommodation adds up for smart investors
Freelance writer Lois Jones discovers how the rising number of international students at leading European universities is driving demand for purpose-built student accommodation (PBSA) and the project what PATRIZIA is doing to help rectify the supply gap as the investment attractiveness of the sector becomes greater.
Question: Which country has the highest provision of English-taught programmes in Europe besides the UK and Ireland?
Answer: Germany.
With more than 2,200 English-taught programmes, Germany is not far off the provision afforded by Ireland and is only joined by the Netherlands in breaching 2,000 programmes despite English not being the native tongue. Five years ago, Germany offered around 1,800 English-taught programmes. Which brings us on to a second question: why does Germany offer such a large number of English-taught programmes, supported by a sizeable recent increase? At the heart of the answer is international students, with the share of international students having risen to a peak of just over 16% in the last recorded figures in 2023.
Increasing numbers of international students are looking to Europe to continue their education, making up a more sizeable portion of the student demographics in many European countries. This trend has not only been seen and acted upon in Germany, which at the same time has experienced a decrease in domestic student numbers, but across the continent, with Turkey, France, Spain and Italy each offering more than 1,000 English-taught courses at its universities, as Figure 1 shows.
While Germany’s opposing trends in student populations (nearly 4% international population growth between 2017 and 2022 compared to a slight decrease in domestic population growth) paints the most extreme picture, modest domestic student growth paired with a much higher international student growth percentage is commonly seen in other countries.
This international student growth story is boosting university numbers, particularly at the higher-ranked institutions, and putting greater strain on an already-undersupplied student housing market in many locations.
The provision rate in the likes of Germany, Italy and Spain for purpose-built student accommodation (PBSA) is well below 10%.
Where should students live?
There is one major problem, however. Where should these growing ranks of students live, given the current undersupply of suitable student accommodation?
This is a question with less obvious answers but helpfully contextualised by looking at specific markets. Let’s look at Italy. The country has experienced rapid growth in the numbers of its domestic students, who are relocating to cities away from home, particularly to the north of Italy, where the main, most prestigious universities and politecnicos (technical universities) are located.
Adding to the problem, students in Italy often study for five years, rather than three years as is common in the UK for example, says Antonio Marin-Bataller – PATRIZIA’s Head of Investment Management Living. Moreover, Italy is welcoming a growing cohort of international students, one reason for this being that the country is a top location for Erasmus students (those students who benefit from the Erasmus+ Programme which facilitates study abroad) and USA StudyAbroad students (broadly the US equivalent of Erasmus).
“In Italy, we have a low provision of student housing so the supply is not there to satisfy that demand,” Antonio explains. “And the available accommodation is not fit to meet modern student needs. Therefore, we see a strong opportunity to develop a more Anglo-Saxon type accommodation, with sought-after modern amenities, such as communal study areas.”
“In Italy, we have a low provision of student housing so the supply is not there to satisfy that demand. And the available accommodation is not fit to meet modern student needs. Therefore, we see a strong opportunity to develop a more Anglo-Saxon type accommodation, with sought-after modern amenities, such as communal study areas.”
Antonio Marin-Bataller – PATRIZIA’s Head of Investment Management Living
A gem in Barcelona
The portfolio includes 635 units spread across two buildings in central Barcelona. The first building, with 538 units, is in the 22@ area of Barcelona. The second, smaller building, with 97 units, is located in the Sant Antoni district of the Spanish city.
The two buildings underwent a total refurbishment in 2017. Now they are home to top amenities, including a gym, a lounge, meeting rooms and rooftop swimming pools.
The acquisitions are particularly valuable considering how difficult it is to find assets in the centre of the Catalonian capital, which boasts a vibrant international student population and each year attracts more and more young people.
In recent years, Barcelona’s local authority has chosen to largely limit student housing development to the outskirts of Barcelona. “This kind of asset, located in the heart of Barcelona, is very rarely available so has proved to be a strategic positioning for us,” Antonio shares.
Over the past two years, PATRIZIA was already able to push up the asset’s rents by over 30% from the level set by the previous owner, as well as increase annual occupancy from 81% to 93%.
Turin investment ‘exceptionally compelling’
Meanwhile in Italy, PATRIZIA invested EUR 70 million in the forward purchase of a PBSA scheme in Turin. The student development lies on Via Fréjus to the west of the city centre between the city’s prestigious Politecnico di Torino which has 33,000 students and the University of Turin with its 81,000 students.
The student development boasts 582 en-suite studio bedrooms and various amenities, including communal kitchens, a gym and study areas.
Turin is home to Italy’s fourth-largest student population with more than 100,000 full-time students. However, the city suffers from a severe lack of student accommodation, with just one bed for every 16 students which equates to a PBSA provision rate of just 6.5%.
As a result, the development is ‘an exceptionally compelling investment opportunity for our global client base’, according to Antonio.
PBSA market is thriving
Overall, the PBSA market is proving to be vibrant, with the promise of great potential for the future, particularly considering the rapidly growing demand from students at home and abroad and a chronic undersupply of suitable, affordable student housing in city centres.
Moreover, in many European countries, PBSA falls outside residential regulations, meaning that investors can increase rents closer to market levels. Other factors, including a high churn rate, a supply/demand imbalance and high yields, all add up to make PBSA a sound investment.
As Antonio concludes succinctly:
“PBSA is an attractive and key part of PATRIZIA’s living sector strategy.”