In order to look at the prospects for major student markets in the years to come, our analysis includes demographic change, student housing delivery forecasts and the impact of structural reforms in education. There is an underlying supply and demand imbalance in all the markets we looked at but the student housing market landscape is ever changing and barriers to entry remain. An improving global economic environment makes investors less risk-averse, and the counter-cyclical benefits of student housing become less obvious. This said, it does set the scene for greater appetite in a slow-to-recover European property market.
What are the key trends shaping the sector in Europe, North America and Australia?
FIGURE 12Country markets at a glance
Source: HESA, Destatis, INSEE, Ministerio de Educación, Rijksoverheid.nl, National Center for Education Statistics, Department of Education and Training, Institute of International Education, Savills World Research
A rapidly growing development and investment market, but structural demographic change ahead
Student growth to taper off: Germany has seen rapid growth in student numbers, increasing by 36% in a decade. International students now account for 11% of all enrolments in Germany, led by those from Turkey, China and Russia. Forecast growth in foreign students will mask a decline in domestic students in the coming years, a result of the ageing German population.
A decentralised market: Unlike many other European countries, the German higher education system is highly decentralised. With the exception of Berlin and Munich, the top university cities all have fewer than 100,000 full time students – the vast majority between 10,000 and 50,000. So, unlike the UK and France (where London and Paris dominate), Germany has multiple, but smaller, markets to choose from.
Private accommodation provision to grow rapidly: Private providers accounted for only around 6% of all student accommodation in the 30 largest university cities in 2000, a figure which has risen to around 16% in 2015. New investment in the sector will push this figure to 22% by 2020.
FIGURE 13Purpose-built student housing expansion in Germany in the 30 largest student cities
Source: Savills World Research
A globally appealing student destination with an ambitious public student housing programme
Major global destination for foreign students: France accommodates 7% of foreign students globally and Paris is ranked as the number one student city in the world by QS. Low tuition fees coupled with well regarded institutions will keep the French capital in a strong position.
Private delivery is forecast to slow: 9,300 private beds are forecast for delivery in the next five years, of which 3,800 are due for completion in 2015. This is eclipsed by the government project ‘40,000’ which will see 40,000 public student housing beds delivered by 2017, part of the CROUS portfolio. A quarter of this has already been developed.
Student numbers grow: Domestic student numbers have surged in a weak French economic environment. The number of eligible French students who enrolled in higher education rose from 63.9% in 2012 to 67.3% in 2013. The international student population is anticipated to rise from 12% to 30% of all students by 2020.
FIGURE 14Chinese students as percentage of all foreign students in France
Source: MENSER, OECD
One of Europe’s fastest maturing markets, where investor interest remains high
International competition: The Netherlands was the first European country to move towards English language tuition. While the number of foreign students continue to grow at the country’s premier Research Universities, enrolment at HBO institutions (which have a lower international profile) has decreased substantially. To combat this, 1,000 new international scholarships are to be offered to top students.
Large-scale purpose built developments: As the largest student city, new development is focused on Amsterdam, which will add around 5,500 beds to the existing stock of almost 22,000 in 2015/16 alone. Large office-to-student conversion projects, such as Campus Diemen Zuid, on the edge of Amsterdam, have delivered campus environments with extensive facilities.
Changes in legislation: Since the beginning of 2015, government maintenance grants have been converted to loans. The increased financial burden on students could have an impact on enrolment numbers in the near term. It may also fuel demand for more affordable student accommodation, at a time when developers are targeting the upper end of the market.
Student market resilient following higher tuition fees and immigration reform
Changes to tuition fees: The introduction of higher tuition fees saw student numbers fall 8.1% from a 2010/11 peak. Not all institutions have been affected equally and we have observed a ‘flight to quality’, with lower ranking institutions disproportionally impacted (see Figure 15). Nonetheless, applications for the current academic year are up 3.4% and 3.3% respectively and a return to growth is expected.
Immigration reform: Around 34% of international migrants coming to the UK do so for formal study. Tighter immigration controls have impacted their overall number, but not those for higher education.
Cost of living and study: The UK is an expensive country in which to study and live (see Trends In Global Higher Education), second only to the USA and Australia. London, in particular, stands out as exceptionally costly. Purpose-built accommodation here has been successful in targeting premium rents, but there is huge potential to expand into lower value markets. The challenge sits with viability, given high land values and competing use classes.
Markets to watch: As a mature market, investing and developing in the UK’s student housing sector requires careful analysis of local market dynamics. Top-tier university cities with low supply, such as London, Bristol, Oxford and Edinburgh, have the greatest potential. Manchester poses increased opportunity, reflecting strong demand and a need for more supply.
FIGURE 15Change in undergraduate numbers in the UK pre- and post-tuition fee rises
Source: HESA, Complete University Guide
Fast growing, undersupplied student sector with increasing foreign demand
Attracting international students: Spain is pursuing a policy of attracting more international students and has set a target of one in three university courses to be offered in English by 2020. International student numbers doubled between 2005/6 and 2013/14, but still only account for 3.8% of all students. Growth has been especially strong from Asia, where the number has quadrupled over the same period.
Undersupply of student accommodation: In 2014 the number of beds and number of halls of residence fell by 0.4% and 1.8% respectively. This was due to the closure of several residential colleges. With 141,000 students seeking accommodation, and little more than 90,000 beds available, potential demand currently outstrips supply by 44%.
Full occupation: Recent improvements in Spain’s economic outlook has meant that the majority of halls located in the main university cities are currently experiencing 100% occupation. Due to the restricted supply, flat-sharing in the private sector is a popular alternative to university halls, especially competitive due to suppressed rents.
Expansion of the sector: Yields currently stand between 6% for prime properties, and 7% for secondary product. Demand is expected to increase for high-quality private accommodation, driven by growing numbers.
English education and quality of life on Asia’s doorstep
Australia is the fifth biggest destination for foreign students in the world. The country is well positioned to attract students from fast-growing Asian markets thanks to its geographic location. It is already the third most popular destination for Chinese students, after the US and Japan. Enrolments from foreign students for higher education grew by 10.1% in the year to March 2015 and now account for 16.5% of the country’s total higher education population, a proportion that is high by global standards (see Figure 16).
FIGURE 16Australian purpose-built student housing provision rate by state
(mobile students only) Sites with more than 100 units, mobile students
Source: Australian Government Department of Education and Training
Australia offers students an enviable quality of life. Melbourne, the country’s largest university city, regularly ranks as one of the world’s most liveable cities. Sydney, the country’s second biggest university centre, has true global appeal. It is no surprise that QS ranks Melbourne second in its Best Student Cities league, with Sydney fourth.
A 2014 census by the Australian Government of the university accommodation sites with more than 100 units identified 74,482 beds, of which 67% were on campus. Of these, 16,393 are found in Melbourne, followed by Sydney with 13,153. The same survey estimates a further 15,000 places across smaller sites. Some 40% of beds are occupied by international students.
The profile of the student housing sector is mixed. According to the National Census of University Student Accommodation Providers, 40% of all accommodation places are university owned. Of the remainder, 37% are on campus but managed by external organisations, 23% are off campus and managed by external organisations. Campus Living Villages (owner operator) and UniLodge (operator) are the country’s largest private sector providers, with approximately 9,000 beds each.
Nationally, the provision rate is just 7%, and taking only mobile students, 22% (Australian students not living at home, and those from overseas). This ‘mobile student provision rate’ ranges from 77% in Australia Capital Territory (focused on Canberra), to 17% in Western Australia (mostly in Perth).
The student housing sector recorded average annual growth in the number of beds of 4.3% between 1999 and 2014, and is projected to grow at an annual rate of 4.7% in the period to 2018. By 2020 the total number of purpose-built beds (in 100+ bed accommodation buildings) is expected to exceed 100,000. Undersupplied, the sector offers significant potential, although competition for sites comes from residential projects which are in high demand.
Development will be focused on the leading student accommodation metropolitan cities of Melbourne and Sydney. Incentives offered by Brisbane (discounted infrastructure and utilities charges on unit developed within 4km of the city) is likely to spur development here.
The Australian government has proposed removing tuition fee caps with effect from 2016 which could impact both domestic and foreign demand in the near term, although experience from changing fee structures in the UK market may suggest that any impact is unlikely to be long term.