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Institutional investors reluctant to join battle for student housing

Wessel van Loon

Valuer

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The investment market for rental homes is booming, a development that most certainly also applies to student housing. Remarkably, this segment of the investment market is dominated by foreign players. Perhaps even more remarkable is the near absence of Dutch institutional investors. A recent analysis conducted by Cushman & Wakefield reveals that foreign investors, including several new players, account for approximately 75% of all investments in student housing. Even investors who have yet to gain a strong foothold in the Netherlands are, to say the least, more than willing to invest. So what do they see that Dutch institutional investors obviously do not or have missed?

Traditionally, the market for student housing has been dominated by social housing proprietors such as DUWO, SSH, De Key and Stichting Bo-Ex. Even today these players hold a major share in the overall supply of accommodation, but the number of institutional investors and their share has increased dramatically since 2015. Notable is the share of XIOR Student Housing, a Belgian investor, whose substantial presence on the market has been felt since 2018.

Source: Cushman & Wakefield


The volume of investments in student housing in recent years has been somewhat erratic, with a strong surge to the amount of EUR 630 million occurring in 2016. The peak reached in that year was immediately followed by a significant drop in 2017, mainly caused by the lack of suitable investment products within the segment. The investment volume for 2018 then again doubled in comparison to 2017, reaching approximately EUR 440 million. This erratic behaviour characterises a segment that is in effect still in its infancy. As such, no substantial commercial student housing investment market existed prior to 2015, and the respective peaks reached in 2015 and 2016 were the direct result of specific projects that were introduced to the market in those years.

The volume of investments in student housing in recent years has been somewhat erratic, with a strong surge to the amount of EUR 630 million occurring in 2016. The peak reached in that year was immediately followed by a significant drop in 2017, mainly caused by the lack of suitable investment products within the segment. The investment volume for 2018 then again doubled in comparison to 2017, reaching approximately EUR 440 million. This erratic behaviour characterises a segment that is in effect still in its infancy. As such, no substantial commercial student housing investment market existed prior to 2015, and the respective peaks reached in 2015 and 2016 were the direct result of specific projects that were introduced to the market in those years.


The volume of investments in student housing in recent years has been somewhat erratic, with a strong surge to the amount of EUR 630 million occurring in 2016. The peak reached in that year was immediately followed by a significant drop in 2017, mainly caused by the lack of suitable investment products within the segment. The investment volume for 2018 then again doubled in comparison to 2017, reaching approximately EUR 440 million. This erratic behaviour characterises a segment that is in effect still in its infancy. As such, no substantial commercial student housing investment market existed prior to 2015, and the respective peaks reached in 2015 and 2016 were the direct result of specific projects that were introduced to the market in those years.

The volume of investments in student housing in recent years has been somewhat erratic, with a strong surge to the amount of EUR 630 million occurring in 2016. The peak reached in that year was immediately followed by a significant drop in 2017, mainly caused by the lack of suitable investment products within the segment. The investment volume for 2018 then again doubled in comparison to 2017, reaching approximately EUR 440 million. This erratic behaviour characterises a segment that is in effect still in its infancy. As such, no substantial commercial student housing investment market existed prior to 2015, and the respective peaks reached in 2015 and 2016 were the direct result of specific projects that were introduced to the market in those years.The volume of investments in student housing in recent years has been somewhat erratic, with a strong surge to the amount of EUR 630 million occurring in 2016. The peak reached in that year was immediately followed by a significant drop in 2017, mainly caused by the lack of suitable investment products within the segment. The investment volume for 2018 then again doubled in comparison to 2017, reaching approximately EUR 440 million. This erratic behaviour characterises a segment that is in effect still in its infancy. As such, no substantial commercial student housing investment market existed prior to 2015, and the respective peaks reached in 2015 and 2016 were the direct result of specific projects that were introduced to the market in those years.


Source: Cushman & Wakefield

Globalisation and its impact on housing
Compared to 10 years ago, the student population in the Netherlands today is much more international, a trend to which Dutch universities and colleges responded by providing entirely English curricula. Last year alone, some 86,000 foreign students from 170 countries enrolled in comprehensive programmes in the Netherlands, which is more than 10% of the entire student population. The expected increase in the number of students in the coming years will again mainly be driven by the influx of students from abroad.

The current trend of globalisation in education also has a profound impact on the supply of housing. Today’s students require an environment in which they can live and study in private, with facilities such as a bathroom, toilet and kitchen of their own. But also an environment that offers communal facilities and spaces in which to interact or work together. We see that international developers are swift in responding to this trend, creating housing complexes that focus on community-living and that provide a range of convenient and practical facilities to go with it. Examples include bicycle-sharing programmes, joint laundry rooms, medical and mental healthcare facilities and shared work spaces and recreational areas within the complex. The OurCampus and OurDomain student housing complexes in Diemen are inspiring examples of what can be achieved. Both complexes are owned by Greystar, an American investor who recently also acquired the Rotterdam Blaak OurDomain complex, formerly known as the ‘Bright’. This complex is also destined to accommodate students and young professionals.

Risks
It is interesting to speculate why so many international investors are interested in the student housing market, while so many Dutch (institutional) investors seem to be avoiding it. It probably has everything to do with the specific nature of the risks that come with investing in student housing as opposed to the risks of investing in regular housing developments.

At any rate, foreign investors are more experienced in developing this kind of product. Whereas present-day campus life is a relatively new phenomenon in the Netherlands, it has been around for quite a long time in the US and the UK. Investors from those countries have long since adopted a management-based organisation and can therefore offer the services and facilities required by students today.

Additionally, institutional investors from the Netherlands are having a hard time coping with the political uncertainties that come with ever-changing laws and regulations. In this country, students who rent an independent housing unit are as a rule eligible for a housing allowance. Due to the large increase in the number of students receiving a housing allowance, more and more politicians are voicing the idea of doing away with it or restricting it. If the idea is implemented, then this will have a profound negative impact on the affordability of such units, which in turn will lead to the risk of rent not being paid by the current tenants. The same applies to the housing valuation system. This system affects all investors in terms of both independent and non-independent housing units. This in turn implies that the number of points allocated to a home is linked to a maximum reasonable rental. The laws and regulations surrounding the housing valuation system are obviously government-controlled, and any amendment to them has immediate consequences for the rentals charged and therefore the yields for the investors.

Conclusion
Student housing complexes have a very specific nature in terms of the type of user, legislation and management. As a rule, they generate a higher rent per square metre and bring a higher yield than regular housing complexes. Additionally, demand for student accommodation in major university and college cities is big, due to which there are long waiting lists and rental periods are regular and contiguous.

The shortage of high-quality, affordable student housing units remains substantial. With their knowledge and expertise, foreign investors are demonstrating the true potential of this asset class. They understand that value is not only created by bricks and mortar, but by the quality of the concept and the entirety of corresponding services. Institutional investors in the Netherlands have as yet not lost the battle for student housing, but they will if they wait too long.