anti-cyclical Europe housing future analyse investment education foreign growing demand Investing in European Student Housing Summary

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1 education oreign domestic students anti-cyclical Europe housing uture analyse investment growing demand Investing in European Student Housing Summary

2 Investing in European Student Housing The challenge or institutional investors o inding attractive investment opportunities has increased signiicantly in recent years as the successive inancial, sovereign debt and economic crises have resulted in increased share price luctuations, record low interest rates and rising vacancy rates in commercial real estate, the latter investment class suering additionally rom the growing trends o working and shopping rom home. In this climate, growing interest can be observed in the United Kingdom, but also in continental Europe, in a so ar largely neglected niche o the real estate market: student housing. Looking back on its own positive experiences to date with investments in this segment, Bouwonds REIM decided to provide its clients with an overview o this possibly unamiliar asset class where selected investment based on solid research o opportunities and risks can provide a valuable addition to the real estate component in investment portolios. The report, entitled Investing in European Student Housing, ocuses on the three core markets o Bouw-onds REIM s European Residential Fund (France, Germany and the Netherlands) as well as the United Kingdom, the only country in Europe with a liquid student housing investment market. Key indings The report concludes that student housing has attractive general investment characteristics compared with other segments o the real estate market available to investors: Attractive yields On average, yields rom student housing appear to exceed yields rom regular residential housing, even when taking into account the relatively management-intensive nature o student housing. These higher yields are not a temporary phenomenon and cannot be ully accounted or by the lower quality o the cash low or the higher average risk proile, either in the United Kingdom or in the continental European countries making the sector in general interesting to invest in. Sizable market With the total number o students requiring accommodation in the countries reviewed approaching 7 million, the size o the existing proessional investment market is cautiously estimated at around 20 billion, with considerable scope or expansion over time, given that proessional investors account or only 8% o the total market in the United Kingdom and ar less (perhaps as little as 2%) in the other three markets reviewed. Stable demand outlook, unlike many other real estate niches An easing o domestic student 2 Summary Investing in European Student Housing

3 Student housing is one o the ew segments o the real estate market expected to see stable demand. numbers in many European countries, due to demographic actors and rising tuition ees, will largely be balanced by a growing inlux o students rom outside Europe who are attracted to its high average academic standards, relatively aordable programmes, many Master s degree programmes taught in English, and attractive historical and cultural environment. I we combine our outlook or domestic and oreign students, we estimate that the total number o students in Germany, France, the Netherlands and the United Kingdom will increase by 3.3% between 2011 and Anti-cyclical nature While yields rom stocks, bonds and commercial real estate typically suer during an economic downturn, enrolment in higher education tends to be resilient or even increases when the economy is weak because o poor prospects in the job market. Favourable risk proile Leases are relatively short but deault rates are low, as students tend to be reliable tenants owing to the oten diverse nature o their income, backing by parents and their ability to economise on non-essentials in order to pay the rent. Figure 1: Outlook in terms o total number o students Source: Bouwonds REIM Research, ,000,000 8,000,000 7,000,000 6,000,000 5,000,000 Germany France United Kingdom the Netherlands Total 4,000,000 3,000,000 2,000,000 1,000, Summary Investing in European Student Housing 3

4 Suicient liquidity Also resulting rom alternative exit strategies, given that most student buildings are located in strong residential markets and/or capital cities, and are already tailored or alternative use, taking into account the growing trend toward single-person households. Student housing stable demand outlook The report examines the eects o various undamental actors on the demand side o the market or student housing, such as overall demographic trends, the interplay between higher education and the job market, and the eects o governments education and educational unding policies. It also looks at the eects o multilateral developments such as the Bologna process, which aims to make diplomas mutually recognised across most o Europe and, importantly, to raise the proportion o EU students learning in other EU countries rom 2% to 20% by Overall, the market or student housing in the our countries reviewed is buttressed by a generally shared conviction that knowledge is the key to individual and collective prosperity, particularly in Europe, where economic growth increasingly depends on productivity growth and, hence, shiting economic activity to occupations with higher added value a shit which crucially depends on higher education. Moreover, higher education increasingly means international higher education, which is viewed by prospective employers as a token o sel-reliance, entrepreneurship and aptitude to work in a global economy. This trend is relected in the dramatic increase in the number o Master s Programmes taught in English in non-english-speaking countries across Europe, notably in Northern and Western European countries such as the Netherlands, Germany and Sweden. This development suggests continental Europe is in the process o building a globally competitive Europe-wide education market, which is likely to have a beneicial eect on the international demand or higher education in the our markets reviewed. In the our European countries under review, domestic enrolment will decrease slightly (except in France) up to 2025, but all o these countries can expect continued growth in the inlux o oreign students during this period also, increasingly, rom outside Europe. Speciically, i we combine our outlook or domestic and oreign students, we estimate that the total number o students in Germany, France, the Netherlands and the United Kingdom will increase by 3.3% between 2011 and 2025, or 0.2% annually. This makes student housing one o the very ew real estate niches that will beneit rom stable demand in the coming decades. Figure 2: Relation between education and prosperity Sources: Oxord Economics and Unesco, 2012 SCHOOL LIFE EXPECTANCY (YEARS) Argentina New Zealand United States the Netherlands Spain United Kingdom Sweden France Poland Japan Australia R = Switzerland Norway 14 Mexico Ghana India 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, ,000 GDP PER CAPITA IN 2012 ($) 4 Summary Investing in European Student Housing

5 Figure 3: Number o oreign students broken down by world region destinations Source: OECD, ,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 Arica Asia Europe North America Latin America & The Caribbean Oceania Other 1,000, , Student housing shortages expected to persist The supply side o the market or student housing is a local issue, as there are major dierences between the various university cities in terms o attractiveness, uture building programmes and the availability o alternative lodging or students. The operating models and ownership structures also dier and may not always be structured in an eicient way. A ew general trends can, however, be identiied: many European university cities have huge shortages o high-quality and aordable purpose-built student housing; many top university cities have long waiting lists or suitable housing; considerable numbers o domestic students continue to live with their parents but would rather live on their own; the gap between demand and supply is particularly wide in the larger cities that are home to top universities making or a negligible risk o vacancies in student housing. While new student housing supply is expected to enter the market in the coming years, mainly developed by private and proessional investment companies, the shortage is likely to persist, at least or the next ew years. This is also because inancial and other considerations will increasingly induce universities and social housing companies to pull out o this market, while most developers still struggle with debt and cost management, which limits their production. Student housing is expected to attract growing interest rom proessional investors and operators The report notes that the investment market or student housing is not yet transparently structured student housing being widely spread among many dierent non-proit, private and proessional providers. By and large, the student housing market is dominated by the private sector with a total share o approximately 85%. O the our countries reviewed, only the United Kingdom can be said to have a proessional investment market or student housing: about 8% o all student accommodation in the United Kingdom is in the hands o institutional investors and operators. Summary Investing in European Student Housing 5

6 Figure 4: Product Overview Source: Bouwonds REIM, 2012 HIGH RENT FUNCTIONAL EXPERIENCE PRIVATE INVESTORS, LANDLORDS In house-rooms, shared appartments PROFESSIONAL INVESTORS Studio s, Student hotels PROPERTY SERVICES UNIVERSITIES / SOCIAL HOUSING Student rooms, on-campus LOW RENT Combining the ownership structure with the various types o accommodation and operating models results in the most common recognisable clusters or product-market combinations in student housing: on-campus basic rooms oered by public companies (mainly United Kingdom), luxury urnished studios operated as a student hotel, and privately owned in-house student rooms or shared apartments (see igure 4: Product Overview). As a result, the returns (and required yields) span a wide range or at least they should, to properly relect the risk return proile depending not only on location but also product segment, although this is not always the case. New specialised student housing operators are expected to enter the European market, and existing student housing operators rom the United Kingdom will probably also expand overseas. We believe that in time, this will support proessionalism in the student housing investment market. The hotel operating model, examples o which have only recently started to appear in continental Europe, is likely to become more common in uture owing to the increasing interest in student housing shown by institutional investors. Prime investment targets are capital cities and selected secondary university towns The report concludes with a top-down analysis o the investable universe o European student housing. While the stock o accommodation available to students varies rom city to city, there is a noticeable overall shortage, both quantitative and qualitative, in the our countries researched (France, Germany, the Netherlands and the United Kingdom). Based on analyses covering the next ive years ( ) or three key attractiveness criteria regional residential attractiveness, regional European university rating, and student market liquidity (size) a map was created showing the investable universe, the attractive regions or investing in student housing. The ranking provided by this map may contrast with rankings oered in other studies, because the methodology applied in this study values a strong local residential market to increase alternative exit strategies or investors. It shows that United Kingdom and Dutch regions are generally attractive due to the presence o both top universities and a absolute large student population, while French and German regions are mainly attractive because o their relatively large student populations. The university rankings o the latter two countries are lower because they currently oer ewer programmes taught in English. All capital cities oer good investment opportunities in student housing, mainly because they have a large student population and an attractive residential investment market. Satellite cities o the capitals o the United Kingdom (Cambridge, Oxord) and France (Evry) are also attractive. Some cities, such as Manchester and Munich, not only host a top university but also have a large student population and thereore oering also interesting investment opportunities. 6 Summary Investing in European Student Housing

7 Figure 5: Attractiveness or investments in student housing Source: Bouwonds REIM Research, 2012 Summary Investing in European Student Housing 7

8 Colophon Drawn up by Bouwonds REIM Research, April 2013 Dim Ghijsels-Kerkho, Head o Research Roelke Buitink-van de Pol, Research Analyst Jeroen Beimer, Senior Research Analyst Benjamin Rüther, Research Analyst Published by Bouwonds REIM De Beek 18 P.O. Box DA HOEVELAKEN Disclaimer Bouwonds Real Estate Investment Management B.V. This publication has been prepared by: Bouwonds Real Estate Investment Management B.V. or an group company thereo (hereinater Bouwonds ). Bouwonds Real Estate Investment Management B.V., has its registered oice: De Beek 18, NL-3871 MS Hoevelaken, P.O. Box 15, NL-3870 DA Hoevelaken, the Netherlands. Bouwonds is part o the Rabo Real Estate Group. This publication is or distribution only under such circumstances as may be permitted by applicable law. This publication is only or the inormation o customers o Bouwonds or its group companies and is provided to such customers subject to the terms o business in place between the recipient and such group company or Bouwonds. This publication was based on current acts and conditions that can change rom time to time. The inormation contained herein is based on selected sources considered reliable. No republication or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability o the inormation contained herein. No republication is made by us as to the reasonableness o the assumptions made, or the accuracy or completeness o any models contained herein. Any opinions expressed in this publication are subject to change without notice and relect the current judgment o the author and may thereore dier or be contrary to opinions expressed by other business divisions or group companies o Bouwonds. Bouwonds is under no obligation to update or keep current the inormation contained herein. This publication has no regard to the speciic investment objectives, inancial situation or particular needs o any speciic recipient. It is published solely or inormational purposes and is not intended to, and should not be relied upon as comprising a complete report or analysis. Bouwonds, its group companies, employees, related accounts, discretionary accounts, or clients may have or have had interests or long or short positions (including loans) in the securities or other inancial instruments reerred to herein (i applicable), and may at any time make purchases and/or sales in them as principal or agent. This publication does not constitute or orm part o any oer or invitation to sell or the solicitation o any oer to buy any inancial instrument, provide any underwriting commitment, or make any oer o inancing on the part o us, nor is it intended to give rise to any legal relationship with you or any other person, nor is it a recommendation to buy any inancial instrument or enter into any transaction or inancing. Neither Bouwonds nor any o its group companies, nor any o Bouwonds or any o its group companies directors, employees or agents, accepts any liability or any loss or damage arising out o the use o all or any part o this publication. This publication should not be regarded by recipients as a substitute or the exercise o their own judgment. No part o it may be (i) copied, photocopied or duplicated in any orm by any means, or (ii) redistributed without the prior written consent o Bouwonds. This disclaimer shall be governed by and construed in accordance with the laws o the Netherlands. All disputes arising out o or in connection with this disclaimer shall be submitted to the exclusive jurisdiction o the courts o the Netherlands Bouwonds Real Estate Investment Management. All rights reserved. 8 Summary Investing in European Student Housing

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