The total European investment volume for purpose-built student accommodation (PBSA) has reached €11.7bn in the first three quarters of 2022 – a 130% increase on the same period in 2021, and a record high according to Savills.
The strong growth in international students who heavily rely on PBSA and the rising number of students attending university is driving investor interest in the sector. Savills expects this growth to continue over the coming years, as the number of young people in Europe (15–19-year-olds) is forecast to rise by 5.8% by 2027. Prague has the highest forecast growth of the European countries surveyed in this age category – with an expected annual increase of 5.7%.
At the same time, many European markets have a significant undersupply of PBSA, which is driving strong rental growth. The average provision rate – the total number of beds divided by the total number of students – across European cities is currently 12.5%, down from last year’s 13% figure. Prague’s current provision rate stands at 24% and hasn’t changed since last year. It remains above the European average.
“The PBSA sector has continued to show that it is counter-cyclical and provides a good opportunity for investors to balance their portfolios in times of economic downturn. It is a strong asset class and the positive sentiment in this sector demonstrates the confidence investors have in its resilience and ability to provide secure returns.”Marcus Roberts, Head of Europe – Savills Operational Capital Markets
Across European cities that Savills monitors, approximately 14,500 new PBSA beds are expected to be delivered in 2022, however this isn’t enough to compensate for the increase in student numbers. On average, across Europe, the public student housing market represents 63% of total PBSA beds, so the majority of existing stock is outdated and of relatively poor quality compared to newer private stock.
This supply/demand imbalance is attracting more investors to the PBSA sector. According to a recent survey conducted by Savills involving real estate investors with total EME assets under management exceeding €500bn, European PBSA is one of the top five sectors that investors are looking to target over the next 12 months.
The average prime PBSA yield across Europe currently stands at 4.15%, according to Savills. This ranges from 3.5% in Copenhagen to 6% in Seville. Prague’s prime yield is 85bps higher than the European average at 5%. Yields have remained broadly stable over the past 12 months.
“Many of the trends that we are witnessing across Europe hold true also for the Czech market; rising student numbers, rental growth, increase in demand for good quality PBSA, low existing stock, etc. The last point is perhaps the most pertinent for the Czech market with regards to the asset class as an investment opportunity, as the amount of existing privately held PBSA facilities is minimal, with most student accommodation remaining in public/university ownership. This results in the sector providing very few investment opportunities, despite the strong underlying fundamentals. Existing PBSA performs well, with high occupancy levels, and we expect that with projects in the planning stage being realised in the short to medium term, this sector will develop in much the same way as other more mature European markets have in the recent past.”Fraser Watson, Director of Investment Advisory at Savills CZ and SK