A young asset class is on the rise: Student living is the new trend among investors. Austria is still lagging behind. Snowballing mobility and population growth are increasing the demand for student housing.
An attractive living space is important for the residents of student accommodations – this is not surprising. Modern student dormitories differ from old conventional ones in structure and facilities, aiming to create greater comfort. Bernhard Wippaunig, executive director at milestone, elaborates: “Using the building in its entirety is important for the inhabitants; as if it were one huge apartment that includes a lobby, a fitness centre and a laundry room.” It is equally important that students have the feeling that they can withdraw and enjoy their personal privacy. “They appreciate the possibilities of going out and networking with like-minded peers on the one hand, but also need to have their own four walls.”
The target group consists mostly of students between the ages of 18 and 27. “Just a small number are older – up to 30 or 32 years old,” says Wippaunig. There are no requests from older people. The apartments are entry-level sizes with manageable prices – “typically one all-inclusive price.” Older people are in another stage of their lives and often have different means of acquiring their own apartments.
On average the inhabitants of student residences stay there for about two years. The director of milestone is pleased: “We are an exception. Most of the students have been in our facilities for four years – almost since the beginning.” The good deals and high quality are decisive.
Small but notable
Student living is just a small part of the real estate branch, but in the last couple of years it has developed into an established asset class in the residential segment. “This applies to the design of the apartments as well as the investor interest. But, unfortunately, it also applies to a shrinking yield advantage compared to the “classical” residential real estate,” explains Hans-Peter Renk, Fund Manager at Bouwfonds IM. This asset class is still characterised by a lot of dynamic changes. According to Thomas Landschreiber, Co-Founder and CIO at corestate, in times of low interest rates on corporate and government bonds as well as declining returns, investors are looking for more lucrative investments which generate a steady cash flow. For this reason, projects like student homes are becoming more interesting. “Therefore, the demand is high and the supply is limited.” This means prices are going up and returns are going down – this has already been observed in other asset classes. Landschreiber: “As a rough guideline: In the asset class of student living, 4 to 4.5% returns can be expected.”
Institutional investors from the insurance industry from inside and outside Austria are showing interest in this asset class. “But family offices and wealthy individuals are also increasingly interested in student homes and micro apartments,” says Landschreiber. Institutional investors often have multiple projects in their portfolios and family offices and private individuals often rather invest in single projects.
Very low vacancy rate
The vacancy rate is very low. “All the properties are well received and almost entirely rented out. The level of occupancy is consistently at 100 % or just slightly below that. We are very pleased with the development of our projects,” says the corestate founder proudly.
“Due to the positive demographic development and the attractiveness of faculties and international courses of studies – in addition to the appeal of the city itself – Vienna is very sought after, even compared to other places in Europe,” says Renk.
Second largest student city in Europe
With more than 200,000 students, Vienna can be classified as the second largest student city in Europe, according to the S + B Gruppe AG. Due to the relocation of the Vienna University for Economics and Business and the convenient accessibility with the U1 and U2 metro lines, the area around the Prater and the Exhibition Centre Messe Wien has become particularly attractive. Wolfdieter Jarisch, Member of the Executive Board at S + B: “Especially the area around the Prater, because of the universities and the modern infrastructure of restaurants as well as leisure and sports opportunities, is very popular with young people.” The S + B group is creating Austria’s largest student residence in the Nordbahnstraße. “We want to set new standards for student accommodation in Vienna. We are very pleased to have been able to secure this ideal student location,” adds Jarisch.
The firm of Milestone, which already operates numerous student homes, wants to develop two further projects in the Austrian capital.
In addition to its two current properties, milestone wants to implement two more projects. Salzburg and Innsbruck are also areas of interest for the company. “We want to secure Salzburg in the next couple of weeks, Innsbruck will follow.” Klagenfurt is questionable, Linz is not on the agenda. “There are enough local suppliers with sufficient living space there. Our products would not fit in.”
In an international comparison Renk sees “the UK as better in a sense that the market is more established because student housing has been developing for a longer time period due to the demand.” Landschreiber agrees with this and also sees the USA as one of the pioneers: “But we are well under way to becoming mainstream.” He believes that the living situation for students in Germany is, at any rate, just as precarious as it is in Austria. He names Munich as an example. “All the big university cities have a common problem: A shortage of affordable places to live”, says Landschreiber.
Due to population growth in urban areas, students are in competition with other people looking for apartments. They have to rely on student residences. Another important influential factor in this asset class is the rise in mobility. Many students spend semesters abroad and want to have the possibility to live somewhere else every year. More and more foreign students are coming to Austria to live here. “They are often compelled to move to living facilities for students as the conventional rental contracts are too complicated, because of the Austrian Tenancy Law (MRG),” says Wippaunig.
The market will grow
The experts are sure that in the future investors will have further plans to make new investments, which will lead to lower purchase yields. The market will grow in supply and demand. It must, however, be taken into consideration that every generation has had different needs and changes in behaviour and perception. Wippaunig: “In principle I believe that there is a close connection between the site expansions of universities and the expansion of the means of transportation.” The location is vital, just like with any other asset class: Location, location, location. The essence of the product will not change much. Even if it is about using Pop-ups, fabricated or wooden construction methods to save time and money. “These areas are important too, but they are niche areas,” explains the milestone expert.
Generally speaking, a lot can be accomplished in the student living sector with innovative ideas. If the current lighthouse projects on the market are persuasive enough, the demand as well as the support from policy makers will both go up. Landschreiber is optimistic: “Ultimately everybody stands to profit from a successful implementation: The tenants, the investors and the cities.”