Student accommodation no longer a neglected niche

As the property boom in Central and Eastern Europe (CEE) continues, investors are starting to look for new and lucrative niches to target. The student accommodation market has barely been exploited at all in the region, with the exception of Poland, but the growing number of international students combined with the outdated existing accommodation mean there is high potential to develop this segment.

The pioneer in Poland is Student Depot, which operates three student houses in the Polish cities of Łódź, Lublin and Poznan, with a total of 1,100 beds, and another 500 due to come onto the market in Wroclaw this August.

Student Depot was founded in 2014 in a region where private sector student housing — an asset class that was already well established in the US, the UK and to a lesser extent Western Europe — was virtually non-existent.


The firm was set up by Griffin Real Estate, one of the leading investment asset managers in Poland with over €5bn of assets, together with its strategic investor Oaktree Capital Group, a developer and operator of student housing assets in countries such as the UK, France and Spain. It received a European Bank for Reconstruction and Development (EBRD) loan for up to PLN118.83mn (€27.07mn) in 2016. Claudia Pendred, EBRD director for property and tourism, said at the time it was a “fascinating project which is breaking new ground”.

“We started the business in Poznan where we acquired an old hotel as part of a package deal. We did a best use analysis and decided it was a good place to start the student housing business. The next investments in Łódź and Lublin were driven by attractive yields. We looked at the assets which we acquired from a developer and saw the possibility to create scale,” says Nebil Senman, a co-managing partner at Griffin Real Estate, in an interview with bne IntelliNews.


There are some compelling arguments for investing into student accommodation in the company’s home market Poland. “Poland has around 1.5mn students, one of the largest student populations in Europe. Over the last five to six years the share of international students has increased from 1% to over 5%, with year-on-year growth of over 15%. Programmes in English are increasing, and Poland is known to offer a good education for a decent price. Not everyone can afford to go to London or Paris to study,” explains Senman.

Despite this, when it comes to dedicated student housing, Senman says, there is “virtually no private sector student offer.” Public sector student housing is limited, the quality is not comparable and students usually have to share a room. Then there are private flats, but the vacancy rate is low and most landlords prefer to rent to non-students to limit their turnover, he explains.

Senman also talks of the benefits of living in a purpose built student dorm: “For students, it’s convenient to be in student accommodation among their peers, they get integrated more quickly, and it’s important for international students from a safety aspect. Parents can sleep well knowing their children are in a place which gives them security.”

Student Depot now plans to focus on leading cities like Krakow, Warsaw and Gdansk. A further 1,200 beds are at various stages of planning and building in the three cities, and by the end of 2020 the firm aims to have around 2,800 beds in total.

There are some changes ahead for Student Depot; “currently we are elaborating the disposal of the business to one of our long-term strategic investor, while we as Griffin may keep 10%,” says Senman. As regards future expansion, he says: “We are excited about continuing to expand the business. Student Depot is not fully rolled out in Poland yet, and we will spend the next five years focussing on our home market. Having said that, we may consider going into other countries. We are also looking for acquisitions of other operators but that is at a very, very early stage. Expansion into neighbouring countries is not excluded.”

An emerging market 

While the private sector student housing market in Poland is tiny compared to several West European countries, Griffin and Oaktree are not the only firms to have assessed its potential. A May 2018 report by international property consultants Cushman & Wakefield describes Poland as an “emerging market for purpose built accommodation driven by strong local demand pools, increasing attractiveness to international students, and good quality universities”. It singles out major cities like Warsaw, Poznan and Krakow that “offer attractive study packages to students and have seen local developer activity increase in the more recent past”.

“Students are in particular attracted to Poland by its relatively lower cost of living, making it more accessible to students from wide ranging backgrounds,” says the report. Students come to Poland from a mixed bag of countries; the top source country is Ukraine, which accounts for 54% of all international students, with another neighbouring country, Belarus, also providing substantial numbers, but other major origin countries include India, Spain and Norway.

These students can struggle to find suitable accommodation. While Poland has around 125,000 on-campus, university run beds, they “vary significantly in accessibility and quality” and are “particularly inaccessible to international students and there is a mixed satisfaction rate for those that do reside on campus”.

Al this means that there is substantial scope for expansion of the private student accommodation segment in Poland, in line with the broader global trend. Internationally, student accommodation is increasingly becoming a recognised asset class. “Student housing has developed into a stand-alone asset in its own right. In particular, the sector has seen record levels of investment, major structural changes and consolidation within the more established markets,” said JLL in a 2017 report that cites the appealing attributes such as stability, resilience and high occupancy.

“Purpose Built Student Accommodation (PBSA) has moved out of the shadow of “alternative” real estate, and is forming a key component of investor allocations to operational real estate across the globe,” concurs the report from Cushman & Wakefield. “Driven by its defensive characteristics i.e. not correlated to wider economic movements, as well as compelling demand and supply imbalances, demand for student accommodation investments across European educational hubs has grown substantially in the last few years.”

The continental European market — and even more so Central and Eastern Europe — is relatively immature compared to the US and UK, which not coincidentally are the top locations for students studying abroad. Nonetheless, C&W cites figures from Real Capital Analytics, Inc. (RCA) that show there were around €13.6bn worth of PBSA transactions across Europe in 2017, up 29% on the previous year. This includes €600mn worth of transactions in Spain, for example, up six-fold on 2016.

The portfolio transactions seen in 2017, were “driven by local market first movers seeking an exit to more institutional and long term sources of capital,” says Cushman & Wakefield. “Portfolio deals in mainland Europe will continue to be limited due to the lack of developed stock in the market, but it is likely 2018 will see increased development activity with institutional capital backing local development partners.” It further notes that “early mover advantage still exists in many European locations, with opportunities to introduce new product into fundamentally undersupplied educational markets.”

Students go international

Demand is growing strongly amid an increase in student numbers — not just in the CEE region but around the world — that includes growing numbers of international students.

“We now live in a world where the student population is more internationally mobile, more flexible and ultimately has more choice in what and how they study, and as a result customer demand for student accommodation shows no signs of abating any time soon,” says the report from Cushman & Wakefield. It cites data from Oxford University that shows the global tertiary enrolment ratio (the share of student age population at university) rose from 14% to 32% in the 20 years to 2012 and shows no sign of slowing down.

Currently the most popular destinations for international students are the US, followed by the UK, Australia and West European countries such as France and Germany. In total, JLL forecasts that 7mn students will be studying outside their home countries by 2020, up from 4.1mn in 2014, most of them from developing Asia.

East European countries aren’t at the top of the list for most international students, with just a handful of universities from the region making it onto international rankings like those from global higher education company QS and the Times Higher Education (THE). Russia dominated the list of CEE academic institutions in the QS World University Rankings 2018, with the region’s top three universities located there and 30 from the country appearing in the overall ranking. Similarly, a handful of Russian universities appeared among the best ranked in the emerging markets and Brics index compiled by THE in 2017. (The top 10 on both rankings were still mainly populated by US and UK universities.)

Still, universities in Russia, Poland and other East European countries have seen growing numbers of international students. As Senman points out, some Polish universities are offering courses in English at a lower price than universities in English-speaking countries like the UK or US, a clear strategy to attract international students.

Housing for “sophisticated consumers” 

At the same time as the hike in international student numbers, JLL points out, there is an undersupply of adequate housing as universities are “unprepared to react to the rise in enrolments and create adequate student housing”.

“The European student accommodation investment landscape has continued to evolve in the past year as increasing global sources of capital allocate to the sector and along the risk spectrum,” says Cushman & Wakefield. “As a result, competition and activity have amplified across European real estate markets, with investors seeking student accommodation investments in traditional and non-traditional locations.”

Gone are the days when a stinky communal fridge and a toaster were considered the height of student luxury. JLL talks of students as “sophisticated consumers”, stressing that “today’s students expect higher housing standards than a few decades ago”.

Listing what students at Student Depot’s accommodation typically require, Senman starts with wifi internet in students’ rooms, which he says is “very important”. Another must is a mail service “where they can pick up their Amazon packages and other things”. “There’s also a preference for one-bed rather than shared rooms, with the average room being around 15 sqm, with a small kitchenette and sometimes a toilet. Students like shared common areas, and perhaps a coffee shop or fitness centre, but this is optional,” he continues. “But in the end what’s important is that they want to pay one rent where everything is included.”

Meanwhile, Cushman & Wakefield stresses that one size doesn’t fit all where student accommodation is concerned. “[D]eveloping purpose built student accommodation in growing markets is not simply a case of ‘build and they will come’,” the consultancy’s report says. “Politics, cultural norms and family traditions are some of the factors that will heavily influence the demand pool for new developments and determine the best type of product to construct. Fundamentally more immature markets will need time to understand, accept and adapt to a new way of living.”

CEE follows the Western lead

While Poland is the only country in CEE where the private sector student housing market is even starting to take off, observers consider there is potential for other countries to follow. As the EBRD’s Pendred noted back in 2016, “there is huge potential in this market for developers.”

In general, CEE universities tend to have more students living in halls than their counterparts in Western or Southern Europe. An earlier JLL study showed that back in 2012 the rate was highest in Slovakia among the countries surveyed, at close to 40%, followed by Estonia at just under 30%, though Poland is the exception with fewer students living in halls than in for example the Netherlands or the Nordic countries. The study also noted “high capacities due to overbuilding during the communist period”. In general many student halls in the region are outdated as it’s now approaching 30 years since the collapse of communism in the region.

“Much of the CEE student housing stock is not fit for the purposes of modern students who require secure and well-appointed individual rooms with good connectivity, community spaces and greater elements of privacy than is often allowed by multi-room dormitories, frequently seen in the region’s university cities,” says Tony Trescothick, director of Studivest, whose website says it aims to provide access to carefully chosen projects and investment opportunities in attractive locations convenient for high-quality higher education establishments.

“CEE students are not likely to be satisfied by anything less than their Western counterparts are getting,” Trescothick adds. “The region’s economic success has created larger numbers of better-off students who are not satisfied with five-or-six bed dormitories and are prepared to pay for extra comfort.”

Aside from Poland, he singles out the Hungarian capital Budapest as having appeal for investment, as well as the Czech cities of Prague and Brno, though notes concerns about affordability and planning in both.

There is also potential in Southeast Europe, especially its largest economy Romania. This was brought up by Silviana Badea, managing director of JLL’s Romanian business, at the SEE Property Forum 2018 in Bucharest earlier this year. Talking of potentially lucrative niches in the Romanian real estate market, Badea singled out both hotels and student housing.

While there are concerns that the Romanian market is not large enough to provide enough commercial assets of a sufficient size to attract international investors amid the ongoing boom in the CEE real estate sector, Badea pointed out that “we have asset classes not tapped into — residential, student housing like in Poland and Western Europe. There are classes that might become a product to answer a demand.”



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