Student housing

Student housing:
International Campus
issues Luxembourg fund

Dear Readers,

a few weeks ago the winter term 2013/14 started. In the past
year alone, there were 2.5 million students in German
univer­si­ties – and the numbers are incre­asing. The research
consul­tancy bulwi­en­gesa estimates that by 2015 there will be
about 2.8 million students. Small-scale residen­tial
accom­mo­da­tion in attrac­tive towns is in parti­cu­larly short
supply. It is precisely in these cities where students are
compe­ting for one- or two-room apart­ments with mostly more
affluent young profes­sio­nals, commuters, and single people.

The high demand has attracted the atten­tion of develo­pers and
inves­tors with a range of diffe­rent concepts, strate­gies and
products. While student housing in Germany is by no means yet
an asset class in its own right, like residen­tial, offices or hotel
property, the market and demand for it are, however,
develo­ping. In times of decli­ning returns on tradi­tional real
estate invest­ments, insti­tu­tional inves­tors are searching for
alter­na­tives which combine reliable cash flows with higher actual returns than the returns antici­pated by the market.

Inter­na­tional Campus has issued the first Student Housing fund
especi­ally for these inves­tors. We are currently provi­ding more
than 2,400 apart­ments as a capital invest­ment and for the fund
in eight locations. Further projects for the expan­sion of our
portfolio are in the pipeline. You can find out more about the
fund in this edition of our Newsletter.

Kind regards

Horst Lieder

CEO Inter­na­tional Campus AG

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Overview of student
housing market in
winter term 2013/14

The student housing market is not
only very tight in German
metro­po­lises like Hamburg, Berlin
and Frank­furt, but also in
numerous smaller univer­sity
towns like Freiburg, Hanover or
Darmstadt. There are several
newspaper reports of emergency
accom­mo­da­tion, bizarre flatmate “auditions” and run-down rooms
far from the univer­sity. The
enormous demand for small-scale
accom­mo­da­tion from students is
also boosted by demand from
other groups—for example, young
profes­sio­nals, commuters or
singles.

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Many students, little accommodation

Accor­ding to the German National Associa­tion for Student Affairs (Deutsches Studen­ten­werk), at the start of the winter term 2013/14 there were more than 50,000 students on the waiting lists. At the same time there are only about 230,000 subsi­dized places in halls of residence. There are appro­xi­m­ately another further 10,000 places under construc­tion or in the planning stage. The student associa­tions are thus provi­ding less than 10% of student housing. The student associa­tions (Studen­ten­werke) predo­mi­nantly provide accom­mo­da­tion for those depen­dent on publicly-funded accom­mo­da­tion.

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In the private housing market rents vary accor­ding to region, immediate location, size, fit-out, market segment –  and of course the attrac­ti­ve­ness of the product brand. Monthly apart­ment rentals in attrac­tive univer­sity towns range from €350 –  600.

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Current studies of student housing

Study: Macro-scoring the student housing market

In Macro-scoring German Student Housing Market from October 2013 the research experts from bulwi­en­gesa evaluated all German univer­sity cities with more than 7,000 students in a scoring. Accor­ding to the analysis of 18 varia­bles from the catego­ries, status quo, history and perspec­tive, 25 out of 76 towns provide very good condi­tions for invest­ment in student housing. The drivers of a high long-term demand are the incre­asing propor­tion of those entitled to study as well as the incre­asing number of univer­sity entrants starting their studies. The first five places, with an excel­lent reward/risk ratio, are Munich (80.9%), Hanover (77%), Cologne (75%), Berlin  (73.8%) and Frank­furt (73.6%). bulwi­en­gesa considers student housing to be a profi­table invest­ment product, which can achieve a long-term and secure rate of return of 5 – 6%.

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Study: Spotlight European

Student Housing

In their study on Spotlight European Student Housing, the inter­na­tional property services provider Savills, came to the conclu­sion: “The Student housing invest­ment market matures”. Inves­tors looking for a return found student housing provided a stable cash flow. The returns in prime locations reach about 5.5% in Germany, Great Britain and France. Rising incomes, living standards and rapidly incre­asing numbers of foreign students ensure that there is a signi­fi­cant group of students with very high expec­ta­tions for their accom­mo­da­tion. In this regard Savills empha­sise that, for the most part, there are no tuition fees anymore in Germany.

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Study: Cities with tight Student Housing markets

In the ranking Tight Student Housing markets in Germany, the Berlin property developer GBI AG analyses 81 univer­sity sites with 22 varia­bles. Today 25 attrac­tive cities and univer­sity towns have already very tight student housing markets – also in the next decades these cities will have an enormous demand for student accom­mo­da­tions. Beside metro­po­lises like Munich, Hamburg and Frank­furt, there is a very tight housing market for students e.g. in Bremen, Freiburg and Hanover. Study: Invest in Student Housing In their study Invest­ment in Student Housing in May 2013, Bouwfonds Invest­ment Manage­ment, an issuing house belon­ging to the Dutch Rabobank Group, estimated the total invest­ment in Germany, France, Great Britain and the Nether­lands as being around €300 bn (with an average value of €45,000 per room). 48% of all inter­na­tional students come to Europe to study. Germany is one of the top five desti­na­tions for students in the world. Here there are now more than 600 master’s courses offered in the English language. Because student apart­ments offer­at­trac­tive returns with a low risk profile, student housing is to be an attrac­tive asset class which can provide solid capital growth for an existing portfolio.

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Three questions for Horst Lieder about the student housing fund:

International Campus has founded an investment trust; can you tell us more about it?

Inter­na­tional Campus AG has launched an invest­ment trust “Inter­na­tional Campus Student I SCA” based in Luxem­bourg for the expan­sion of the platform. In a first closing we have already acquired €50 m of equity capital. That puts us directly into the invest­ment phase. The planned equity capital volume is €250 – 300 m, with which we will be able to expand a portfolio with a total volume of €600 – 800 m.

For whom would this be an attractive investment opportunity?

The parti­ci­pa­tion offer of the fund is directed towards profes­sional inves­tors who wish to invest a minimum of €10 m within the context of a private place­ment. The expected term is five to seven years – with a target return on equity capital (IRR) amoun­ting to 14 per cent.

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What strategy are you pursuing?

Currently Inter­na­tional Campus is provi­ding more than 2,200 student apart­ments for the fund in seven German cities, for example in Frank­furt, Berlin and Hanover. Further projects are already in the pipeline and we are constantly asses­sing further locations to expand our portfolio. Our objec­tive is to be one of the leading provi­ders of student housing in Germany within five years.

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News

Eleven elite universities I

n Germany today there are eleven “Elite Univer­si­ties”, which receive additional public funding for their research and future develo­p­ment plans. Among the cities with elite univer­si­ties are Bremen and Berlin.

CBRE foresees a demand for 47,000 apartments

In their Market Report on Student Housing from April 2013, the property consul­tancy CBRE estimate that there is a current demand for 47,000 additional student apart­ments in the upper segment alone.

Berlin continues to grow

There are around 3.375 million people living in Berlin (December 2012). Alone in 2012 the popula­tion increased by 41,324 – while this year saw only 4,500 residen­tial units being completed. In the capital there

are more than 160,000 students atten­ding 42 univer­si­ties.

More single-person households

The Federal Statis­tical Office (Statis­ti­sches Bundesamt) has estab­lished, that 41 per cent of all German house­holds consist of only one person – whereas in 1991 it was still only 34 per cent. In cities like Berlin or Frank­furt

the propor­tion of single-person house­holds is over 50 per cent.

€864 income

Accor­ding to the 20th Social Survey, published in summer 2013 by the German National Associa­tion for Student Affairs (Deutsche Studen­ten­werke), students in Germany have an average disposable monthly income of €864. Accor­ding to the survey 26% of students have a monthly income of over €1,000, but the study is based on data from 2010-12. We assume that this propor­tion is probably now about 30% as incomes and rents have risen to some extent. In the past two years, many German cities have seen rents rise by 5–10% per year. Accor­ding to the survey, between 2010 and 2012 about 21% of students were paying more than €350 for rent and ancil­lary costs. The average rent was €298. 62% of all student are on full-time first degree courses, are living away from home and are single.

Young people “swarming”

Empirica has estab­lished that the group of 25- to 30-year-olds is concen­t­ra­ting in certain selected cities to a greater extent than in the past. The propor­tion of young people is now more than 30% above the German average in 18 German cities, inclu­ding Freiburg, Leipzig, Jena, Munich and Darmstadt.

World Universities 2013

Accor­ding to the Academic Ranking of World Univer­si­ties 2013, there are four German univer­si­ties among the 100 best of the world: TU Munich and the univer­si­ties of Heidel­berg, Munich and Freiburg.

Germany still attractive

In 2012 there were a total of 265,000 regis­tered foreign students in Germany. By 2020 the number of inter­na­tional students is expected to rise to 300,000.

Event tip – IC at GRI

Inter­na­tional Campus will be discus­sing the subject of student housing with numerous experts at the German GRI in Frank­furt on 7–8 May 2014.