The global investment landscape

Student housing is well and truly established as a new asset class. Property yields in traditional commercial real estate sectors are at an all time low, and investors are looking for return elsewhere. In mature markets, student housing can no longer be considered an alternative asset class. Investment volumes reached a peak in 2016 with 16.4 billion USD invested worldwide, falling back thereafter not due to lack of investor interest, but a scarcity of availability.

Mixed picture of student numbers

Higher education has become globalised, with a marked movement from east to west. The growth in international student numbers has created demand for student accommodation across the globe. China is the biggest outbound market, accounting for 17% of international students globally. Many countries recognise that foreign students bring benefits to the domestic economy and have adopted strategies to attract more. The introduction of English taught programmes is increasing in most European countries. The Netherlands offers the most, followed by Germany, Sweden, Denmark and Spain. The number of international students in Slovenia is increasing, albeit from a very low base. There were 3,169 foreign students enrolled in 2017, representing a 30% increase from 2013. 70% of these foreign students come from ex-Yugoslavia, with 10% from Italy and Russia, and 20% from elsewhere.

Student numbers declining in Slovenia

Although the percentage of Slovenes in tertiary education has remained remarkably stable, with almost half of young people aged 19 to 24 in education, the numbers are declining.  In 2016/17 there were just under 80,000 students enrolled in tertiary education which was 1,000 fewer than the year before and more than 36,000 fewer than 10 years ago. This is entirely due to demographics, with a continued decline in the number of babies born since the peak in 1980. The Slovenian population bell chart shows that the number of 21 year olds at present in Slovenia is 19,754, and that this will decline to 19,068 by 2025. It will then start to increase, reaching 24,121 by 2030, before declining once more. Global figures are quite different and the World Bank estimates that at the current rate of population growth and participation in higher education, there could be as many as 276 million students worldwide by 2030. Many of these will study abroad, the latest figures from UNESCO suggest there are currently over 5 million internationally mobile students. The US tops the league, hosting over a million foreign students, with the UK in second place with nearly half a million. However international students travel to all parts of the globe to study, with nearly 55,000 in New Zealand, and over 43,000 in Czech Republic.

What do students need from their accommodation?

Students value privacy above all, and prefer single rooms to sharing with others. However they also want communal space where they can meet other students and socialise, and they value study spaces away from their bedroom. They like everything under one roof such as an onsite fitness centre, and prefer an all in cost with no extras. The majority of students prefer to live near their campus, and choose proximity to class over a property with more facilities that is less conveniently located. New purpose built student accommodation comprises only single rooms. A typical student pod in new purpose built accommodation consists of a main studio area with double bed, a mini kitchen and desk, and a wardrobe, with a small shower room. Students in Slovenia are not so lucky, many of them still have to share a bedroom.

An increasing number of wealthy students from China and elsewhere have different needs. The Collegiate student residence in Barcelona will open this year and offers a 24/7 Concierge, rooftop swimming pool, outdoor sun terraces, fitness suite, library and private study rooms, resident’s club lounges, on-site cinema, dinner party room, games room, high speed broadband, laundry room and state of the art security. All set in designer surroundings reminiscent of a luxury hotel.

Not all new student accommodation is purpose built. In Glasgow, a court house was converted into student accommodation. There are two secure holding cells still in place, useful for badly behaved students!

What do students pay for their accommodation?

Rents vary widely according to country and city, from a low of 40€ per week in parts of Germany, to a high of 650€ per week in top locations in the UK. Student accommodation in Slovenia costs around 80€ per month for a shared room, and 120€ a month for a private room. Many students rent shared flats at a cost of around 150€ per month for a shared bedroom, up to 300€ per month for their own bedroom in a shared flat, plus utilities and service charges.

Development potential in Slovenia?

It is clear there is a shortage of student accommodation in Slovenia, particularly in Ljubljana. Recent media reports have described students having to stay in hostels several days a week because they are unable to secure a permanent place to stay. The big challenge in Ljubljana however is finding land, or a property suitable for conversion to student accommodation. International student accommodation developers look for cities with a combination of highly ranked universities, high-value real estate, a large international student presence, and post study employment opportunities for students. Whilst Ljubljana ticks some of the boxes, it will not rank number one on most foreign developers wish list, and development will no doubt be left to local less specialised developers.

Student accommodation investors

There are two models adopted by developers. They can choose to develop a student property, rent it, and sell it to an institutional investor in its entirety. A different model is to sell individual suites to investors seeking a return. Student properties are available in the UK from 58,000€, providing a guaranteed yield of up to 10% for up to 5 years. The institutional picture is rather different. Yields in 2017 in the UK were a maximum of 5.5%, 7.5% in Germany, 5.25% in France, 6.5% in the Netherlands and Ireland and 7% in Spain and Italy. A continued decline in yields is reported, due to high demand and limited supply.

Jacqueline Stuart is a Director of S-Invest d.o.o.