June 16, 2021

PBSA Market Update: what does the future hold for Southern European student accommodation?

On June 3rd, The Class Foundation's Student Housing Market Update attracted over 400 professionals from across the globe to dive into the Spanish, Portuguese, French, and Italian markets.

On June 3rd, The Class Foundation's Student Housing Market Update attracted over 400 professionals from across the globe to dive into the Spanish, Portuguese, French, and Italian markets. The virtual event began with a market overview by Marcus Roberts, Director at Savills, and was proceeded by a panel discussion moderated by Kelly-anne Watson, our Head of Programmes. The panel included:  

  • Giulio Limongelli - COO, DoveVivo
  • Joe Persechino – Head of Residential & Student Accommodation, AXA-IM
  • Eri Cuanalo – CEO - Europe, Collegiate
  • Stefano Pagliani – Investment Associate, Hines

Marcus’ presentation began with optimism for 2021, with an increasing appetite from new market entrants into new geographies specifically in southern Europe. Over an 18-month period the sector has created greater dynamics and opportunity and the key reason why student housing is an asset class of significant interest to international instructional investors.

On the other hand, competition for assets in key university cities could predicate “further yield sharpening”. He alluded challenges lenders are facing in Italy and Portugal, confirming resistance from local banks but a change in approach enhanced understanding on how to generate a steady stream of income during the life of the loan. This awareness raising is partially important in regions that are at the start of their PBSA journey. The learning process has been supported by institutional investors filling in the gap for forward-thinking projects enabling developers and operators to bring those much-needed projects to the forefront.

A recurring theme throughout the event was that tier 2 and 3 cities are attracting investors and developers, due to the growth of local universities, lower cost investment opportunities, and increasing bookings from domestic cohorts. Now for a deep dive per country…

Spain

With 1.63 million students studying in the 2019/2020 academic year, of which circa 10% from abroad, Spain has reinforced its position as one of the most ideal markets for inbound investment. Joe Persechino added that the upcoming domestic numbers in Spain are in line with 2019. Student residences in Spain (and Portugal) are operated on a management contract basis but more operators are open to lease model management, as is prolific in France. Lenders are also becoming more comfortable with the asset class, fueling developer activity without forward funding. Up and coming cities for investment are tier 2 and 3 cities such as Oviedo, La Coruna, and Montcada.

The future of Spanish student housing looks promising as there will be significant growth in the market to tackle undersupply predominantly in tier 2 cities. The focus will lie on the domestic market in the short and long term, with an injection of a more diversified market portfolio. Acquiring land is however becoming more challenging with increased rates and unsuitable locations being offered.

Portugal

The Spanish and Portuguese markets share many similarities, one of which is their inbound investment attractiveness. Another is that most student residences are operated as owner operators or on a third-party management contract basis. Though, we are seeing the emergence of a more institutional lease model (from the likes of Odalys & Camplus) which has been the mainstay of the French student housing market for many years. Lastly, traditional real estate lenders are slowly becoming more comfortable with lending into the sector, however there is continued institutional interest in forward funding developments out of equity, so developers have several financing solutions available but all with different risk/ rewards attached to them.

The Portuguese market is still recovering from the pandemic and for the short term this may create issues for international student mobility. Currently, the large university cities offer luxury and high-priced stock, but for the future it’s predicted that this market will start to segment and mature offering more portfolio diversity.

Italy

With one of the strongest supply/demand dynamics in Europe, Italy is attracting investors from across the whole risk spectrum. Major cities such as Milan and Turin board provision rates of circa 4% with high levels of domestic mobility across all major university cities. However, as a nascent sector, developments can take 18 months to secure full planning leading to a limited development pipeline. Stefano Pagliani shared “Italy doesn’t have much experience with student housing. There’s lots of town planning but less student housing, which is categorized as a special asset class. At Hines, we had to create regulation and talk the banks through the process which included planning, information on the market, and operations.” Eri Cuanalo added “Previously Italian banks offered 100% dept, which caused a real crisis, leaving behind long-term effects and financial strain.”

Future predictions for the market are that it will mature but that major investment is needed to supply the over demand. Additionally, it’s crucial to continue educating all stakeholders to ensure cross-border understanding and support for this market. Joe Persechino advised inviting stakeholders into the buildings during the development stage and showing them what is offered to the students, is an effective way to get them on your side to create alliance and understanding.  

France

There are 1.65 million students in France, of which 343,000 are international, equating to more than 20% of the student population. Despite the impressive numbers, student accommodation in France is significantly undersupplied with outdated and underfunded CROUS residences accounting for 56% of the offered beds. Savills research indicates that there is a private student to bed ratio of more than 14x. In other news, sustainability has been a key area of interest for developers with many NZC residences attracting international ESG-focused capital evidenced by Catella and Elithis JV. France also has stricter licensing schemes making coliving and hybrid concepts unattainable as a contingency. This is return causes difficulties for operators as they can be less flexible with their products and services.

The future of student accommodation in France is positive as it’s a growing and underrepresented market. There will be an increase in local developers with land partnering with operators are emerging. Lastly, the country is witnessing positive changes in legislation and opportunities in secondary locations to convert buildings such as offices.

What's Next?

To wrap up the session, we asked the audience to share their predictions per region for the academic year 22/23. All four markets were predicted to be undersupplied in terms of student beds which leaves great potential for the Southern European PBSA market.

In case you would like to (re)watch the recording, you can do so by registering on our website. You will then receive access to the platform. Our next market update on September 2nd will focus on Central Europe, specifically Germany, Poland, Czech Republic, and Austria. See you there!

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