From student digs to investment opportunity
Summer is traditionally the time for students to find accommodation. But take a step back for a minute and you’ll see more than a collective annual search – this is a real estate market where supply and demand are persistently out of balance. It is precisely this tension that makes student accommodation relevant for today’s investors, since every ‘no rooms available’ notice reflects a broader economic reality.
We discuss this topic with Sabrina Reynen, Real Estate Expert and Portfolio Manager at KBC Asset Management.
The enduring tension between supply and demand
Student accommodation is increasingly considered a separate segment of the real estate market.
Supply remains limited in many European towns, whereas new demand arises year after year. This translates into high occupancy rates and a rental market that remains relatively robust, with European figures revealing occupancy rates of around 98% and sustained rent growth in various markets.
The challenges faced by students are indicative of persistent demand from an investment perspective.
Sabrina Reynen, Real Estate Expert and Portfolio Manager at KBC Asset Management
Silent drivers: demographic composition and internationalisation
This demand is underpinned by a number of long-term trends.
The share of young people in higher education continues to grow, as does student mobility. University towns are increasingly attracting international interest, putting further pressure on local housing markets. On top of this, demographic studies have shown that the population of young people in the relevant age group will continue to grow in the years ahead.
Being gradual in nature, these developments are capable of providing a relatively stable basis for long-term demand.
Inflation, rental income and adaptability
The past few years were marked by inflation and rising costs. Against that backdrop, real estate is often appreciated for its ability to generate income streams in lockstep with the price level.
A specific dynamic is at play in student accommodation. Since tenants change frequently, rents can be adapted to market conditions on a relatively regular basis. In several European countries, rent growth has also been found to exceed the general rate of inflation in this segment.
Student digs are more than just four walls. In certain situations, they may also be a source of inflation-proof income in the long run.
Sabrina Reynen, Real Estate Expert and Portfolio Manager at KBC Asset Management
From interest rate environment to rental demand
The broader macroeconomic context is another relevant factor. Rising interest rates in the past few years have raised the cost of real estate financing and slowed down the owner-occupied market, thereby driving demand for rental solutions.
Today, interest rates and inflation seem to be stabilising somewhat, enabling a gradual recovery of the investment climate. This means that several factors come together in the student accommodation segment: sustained demand for rented properties, a relatively limited rate of new property development and – as a result – lasting shortages.
Having said that, consistently underpinned growth is no guarantee for investor returns. The UK market is a case in point.
The example of the UK market: persistent tailwinds alone are not enough
Although it is consistently supported by robust demand, a strong international inflow and a shortage of high-quality accommodation in major university towns, the UK student accommodation market is not automatically a preferred choice for investors.
It has recently become clear that a market with solid foundations may also be vulnerable to other forces, with rising rents, high study costs and the general pressure on purchasing power increasing price awareness among students. This weighs on the pricing power of owners, which holds especially true for buildings located outside the most sought-after areas or that are less distinctive. For investors, this means that growth in demand or rents does not fully translate into a return.
Add to this a new source of uncertainty stemming from the potential impact of artificial intelligence (AI) on the labour market for young jobseekers. If AI changes certain entry-level jobs in sectors such as consulting, finance or technology, this could affect the perception of expensive study programmes in due course. While this is not yet slowing down enrolment figures, it may increase cost consciousness among students and their parents.
The UK market mostly illustrates that persistent tailwinds alone are not enough. The importance of selectivity, price discipline and an understanding of local markets grows as student accommodation matures.
Sabrina Reynen, Real Estate Expert and Portfolio Manager at KBC Asset Management
For now, this does not appear to be a widespread development in Europe. The foundations generally remain more balanced, with sustained demand, limited new supply and long-term drivers such as demographic composition, internationalisation and increasing urbanisation.
Quality and professionalisation are gaining ground
Students’ expectations are evolving. Where location and budget used to be decisive factors, we now see a growing demand for high-quality, well-equipped and professionally managed accommodations with additional services such as communal areas, co-working spaces and opportunities for social activities.
In that sense, student accommodation is part of a broader shift in real estate where comfort, sustainability and experience are gaining in importance.
Wider access to the real estate market
As not every investor chooses to invest directly in real estate, indirect solutions are often considered in asset management. These may include listed real estate companies active in this field, which are able to provide exposure to multiple projects and regions while guaranteeing a professional approach.
Student accommodation could serve as a supplement in a diversified investor portfolio – for example through listed real estate companies – depending on the investor’s profile and objectives.
Sabrina Reynen, Real Estate Expert and Portfolio Manager at KBC Asset Management
Of course, this kind of investment should always be placed in its wider context, with attention being paid to factors such as interest rate trends, local regulations and market dynamics.
Looking beyond the obvious
The search for student accommodation may seem like an individual, practical decision at first glance, but investors who look beyond this will see a market where permanent forces such as demographic composition, mobility and economy meet.
This may provide investors with valuable insights – not in the form of clear-cut answers, but as a potential building block that is part of a broader view of real estate and portfolio diversification.
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This document is published by KBC Asset Management NV (KBC AM). The information and figures it contains are a snapshot, which may be changed without notice. The information provided offers no guarantee for the future. The information provided should not be regarded as investment advice or as an investment recommendation. Nothing in this document may be reproduced without the prior, express, written consent of KBC AM. This information is governed by the laws of Belgium and is subject to the exclusive jurisdiction of its courts.
