Student Accommodation Rental Trends in Europe 2020-23

Purpose-Built Student Accommodations (PBSAs) represent one of the most rapidly expanding sectors within the European market. The continent is increasingly becoming the preferred destination for students pursuing higher education, leading to a surging demand for available accommodation, which is currently insufficient. Consequently, the prices of student accommodation rentals are on the rise in several countries such as Italy, Portugal, Poland, the UK, and more.

Prominent PBSA providers in the UK observed that 98% of their rooms were fully booked by July for occupancy in September. In Europe, the PBSA occupancy ranges anywhere between 95% to 100% indicating the growing demand by university students.

This prevailing trend is anticipated to continue its upward trajectory in the forthcoming years, primarily due to an expected 5.8% increase in the population of young students by 2027. Consequently, a supply shortage of PBSA accommodations is projected to persist, ultimately escalating rental prices.

Supply vs Demand: A Market Overview

One of the primary drivers behind the continuous surge in the prices of student accommodation rentals is the increasing influx of students into higher education institutions. Another significant factor contributing to the imbalance between demand and supply is the high level of construction inflation, which restricts the potential for additional supply. According to a report from JLL, there are approximately 20 million students enrolled in universities across Europe, and there has been a consistent shortage of available accommodations throughout the entire continent.

‍Increasing International Student Population: A similar situation is observed in Lisbon, where the projected student population by 2027 is 139,548, but only 6,188 new PBSAs are planned to be added to the existing 5,728. In Madrid, as well the number of beds in the pipeline falls short of the incoming student population.

For instance, in Rome, the population of higher education students is expected to rise by 6.6% by 2027, while the number of beds is projected to increase by only 3.6%. This discrepancy implies that the supply may not adequately meet the demand, ultimately leading to increased rental costs.

Student-to-Bed-Ratio: Approximately, there are seven students for every available bed, whether provided by universities or the private sector, across Europe. This means that around 11 million students are relying on private student accommodation rentals to secure their rooms, while an additional 6 million students seek lodging with relatives or family.

Provision Rates: Being a mature market for purpose-built student accommodation rentals, the UK has observed a provision rate of 27% in 2023, showcasing a strong supply of beds in the country. On the other hand, in Europe, the student accommodation report by Bonard shows a substantial increase in demand in the coming years, the growth in the number of available beds may struggle to keep pace.

Potential for student accommodation Rental Growth: Industry experts contend that the demand surpassing the supply of available beds in most European cities creates a high potential for strong rental growth. In Europe, PBSAs in Poland have witnessed a 17% year-on-year rental growth while the UK and Portugal stood at 6%. With a staggering 8.02% rental growth observed in the UK, private developers have expanded exponentially, attaining a robust rental growth of 9.39%.

Student Lets Rental Growth: Y-O-Y Comparative Analysis

The PBSA sector has remained a resilient asset class, showcasing strong student accommodation rental growth potential in this real estate market. According to Eurostat, rental prices have risen by 2.9% in the past year, despite a consecutive two-quarter decline in house prices. This surge in rental demand is majorly in the case of purpose-built student accommodation rentals, as the private sector already grapples with extreme overcrowding.

Conversely, in Eastern European countries like Germany and the UK, year-on-year growth in 2022-23 has passed 2021-22. However, this ascent has been particularly steep in Central European countries. For example, in Poland, rental growth was a modest 2.4% in 2020, but it surged to 14% in 2022 and climbed even further to 17.3% in 2023.

In the graph below, we can observe that Western European countries such as France, Italy, and Spain exhibit a complex scenario. They recorded a slightly lower year-on-year growth in 2022-23 compared to 2021-22. In France, rents in more popular cities have increased by 2-4%, while less popular cities in Spain, like Malaga, have experienced a growth rate of around 9%.

Investment Opportunities in the Student Housing Market

With a continuous increase in the prices of student accommodation rentals and the number of individuals choosing Europe to complete their further studies, there is a lot of scope for investors. These investment opportunities are also driven by the constant imbalance between demand and supply in the market. According to a student housing report Savills, the investment volumes reached €11.7 billion in 2022, which is 130% more than in 2021.

Amongst the prominent transactions, the UK’s largest student housing deal amounted to £3.3 billion (€3.8 billion), for a 26,000-bed Student Roost portfolio acquired by by Greystar and GIC.

Over €12bn to be invested in PBSAs over the next two to five years, led by Spain, Italy, Germany, France, and Portugal

The UK is the biggest market for PBSAs in the continent but the investment appetite. One of the industry experts called the European market “A variety of opportunities”. He continues by saying that there is tremendous potential to build a continental portfolio that combines first-mover advantage in some countries with established, proven revenue streams in others, from mature markets in the UK to developing markets in Italy and Poland.

The other attractive factor in Europe is its growing international appeal amongst the students. Most of the countries have seen an increase in the number of students coming to study on the continent. According to the Times Higher Education World University Rankings for 2023, Europe has the most universities out of the Top 100 Universities in the world.

The other reason for students getting attracted to Europe is the number of grants being provided by the government. Many of these nations have grants or low-cost loans provided to students to maintain their cost of living.

Conclusion

The burgeoning student population in Europe seeking higher education has propelled the rapid growth of PBSAs, making it one of the fastest-growing markets on the continent. The demand and supply imbalance is expected to persist, resulting in a continuous upward trajectory of student accommodation rental rates in the coming years. With private sector accommodations in major cities being oversubscribed, the pressure to accommodate more students continues to increase.

However, the demand-supply gap fuels investment prospects, with significant transactions and notable volumes in the upcoming years. The UK stands as a prime market for PBSA investments, boasting Europe's largest real estate deals in this sector.

Europe is expected to continue witnessing a rise in international appeal among students, further highlighting the demand for purpose-built student accommodation rentals. With a forecasted continuation of this trend, investors have a fertile ground for potential growth and profitability in the PBSA market across the continent. As the demand for higher education in Europe continues to soar, the PBSA market is poised for substantial expansion and a promising future.

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